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Public Finance Review
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Do Local Residents Value Federal Transfers?

Evidence from Interprovincial Migration in Canada

Samira Bakhshi

University of Saskatchewan

Mohammad Shakeri

University of Saskatchewan

M. Rose Olfert

University of Saskatchewan, rose.olfert{at}usask.ca

Mark D. Partridge

The Ohio State University

Simon Weseen

University of Saskatchewan

A fundamental governance challenge for federal nations is benefiting from decentralization, while addressing potential negative side effects, including vertical and horizontal imbalances. Inefficient migration due to differential net fiscal benefits in subnational units is one potential negative side effect. To avoid this type of migration, federal payments to disadvantaged subnational units, a place-based policy, are often advocated. In this article, we assess federal equalization transfer payments in Canada as an example of such a policy. Equalization is appraised in terms of its marginal influence on interprovincial migration, after accounting for the persistent relative attractiveness (unattractiveness) of provinces as migration destinations/origins. We then compare equalization to an alternative policy that directly subsidizes workers. Compared to a ``people-based'' policy of wage subsidies, our findings suggest that at the margin, these federal transfers have virtually no impact on net migration.

Key Words: decentralization • migration • federal transfers • fixed effects

This version was published on May 1, 2009

Public Finance Review, Vol. 37, No. 3, 235-268 (2009)
DOI: 10.1177/1091142109331638
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