Fiscal Integration and Subcentral Public Sector Inducements to Canadian Interprovicial Migration

Abstract

<p>Ideally, an efficient migration process would aid in alleviating regional economic disparity by shifting labour from low income, high unemployment regions to high income, low unemployment regions. The possibility that fiscal influences might affect the spatial allocation of labour and other resources has for some time, however, been acknowledge by economists as a potential problem in federal states like Canada that are characterized by substantial inequality in revenue capacities across regional governments. Essentially, the argument is that unavoidable differences in government expenditures and taxes that result in such cases would affect the relative attractiveness of different regions to individuals and thereby the likelihood of residing there. Despite recognition of this as an inherent problem in federal states, the issue of fiscally induced migration received almost no consideration in applied research on the causes of Canadian flows. Two developments have, however, brought the issue to the forefront of a number of important policy debates. First, net migration gains by several economically depressed provinces in recent years have heightened interest in the possibility that personal and intergovernmental transfer payments from the federal government have enhanced the attractiveness of such regions and thereby affected the migration adjustment process. A second significant event has been the skyrocketing oil and natural gas prices during the 1970s. Suspicion naturally arises that the resulting sizable fiscal surplus accruing to residents of Alberta might at least in part account for the dramatic increase in the popuIarity of that province to migrants. The present study attempts to fill at least part of the gap in existing knowledge about fiscal influences on migration in Canada. It explores in detail the precise nature and magnitudes of subcentral government expenditure and tax effects. An econometric model of migration choice is developed and utilized in exploring this and several other issues associated with inducements to Canadian migration. Evidence emerging from the econometric investigations supports contentions that fiscal factors have systematically affected Canadian migration. In addition, policy, simulations conducted indicate that migration flows might be quite sensitive to changing fiscal realities.</p>