Laboratory federalism and intergovernmental grants

This article contributes to an institutional economics analysis of the public economy by answering the following question: what is the role of intergovernmental grants in laboratory federalism? In line with factual evidence, the fiscal federalism literature on policy experimentation hints that grants can be employed to stimulate policy innovation through trial and error learning. Yet it lacks a theory of policy experimentation through grants, meaning that, in effect, we lack a fiscal theory of laboratory federalism. In the proposed approach, an intergovernmental grant is likened to a fiscal institution for political compromise between levels of government that frames policy experimentation options and constraints. At the same time, since policy solutions are not always easy to find or to implement, policy experimentation requires some degree of flexibility. Thus, the article shows that the extent of experimentation induced by a grant is influenced (or, more fashionably, nudged) by the conditionality attached to the grant. It argues, moreover, that if a grantor would like to induce more (less) experimentation, then, all other things equal, a grant with fewer (more) conditions attached should fare better than a grant with more (fewer) conditions attached.

The Politics of Checkbook Federalism

This article adopts the perspective of second-generation fiscal-federalism theory to provide an empirical assessment of Canada’s intergovernmental fiscal arrangements. In the context of the literature on the political economy of intergovernmental grant programs, it examines the influence of political considerations on the evolution of the Canadian fiscal arrangements under the Constitution Act of 1982. Fixed-effect regression results exploiting data from the 1982 to 2012 period show a statistically significant relationship between changes in both federal and provincial electoral variables and changes in a province’s total federal transfer revenues. Changes to social transfers appear to be more reactive to changes in the political environment than do changes in equalization transfers.