1. Federal System of Government “A public sector with both centralized and decentralized levels of decision making in which choices made at each level concerning the provision of public services are determined largely by the demands for those services of the residents of (and perhaps others who carry on activities in) the respective jurisdictions.” -Oates (1972)  But federal systems can differ greatly due to divisions of powers and responsibilities:

2. Centralization Ratio  Canada has a relatively decentralized government  Note that France and UK are not federal states

3. Expenditure changes  Provincial activity has grown over time

4. Expenditure changes

5. Centralization and Expenditure  Note that these centralization ratios (central government expenditures to total government expenditures) can be misleading in two ways: 1)If the federal government heavily funds provinces with many restrictions, the centralization ratio is underestated  This is significant in healthcare, but insignificant elsewhere 2) If provinces successfully lobby the federal government, the centralization ratio is overstated

6. Optimal Centralization  Compared to many industrial countries, Canada has a relatively decentralized system, and there is a continual tension between provincial and federal government over a variety of issues  Should provinces get more power? Less?  What are the advantages and disadvantages of decentralization (more power to the provinces)

7. Advantages of a Decentralized System 1)Tailoring government to local tastes  People have differing tastes, and people with similar tastes tend to group together  Decentralized governments allow for different levels and varieties of government services  Different areas operate differently and could benefit from different economic regulations (ie: Sunday shopping) 2)Fostering intergovernmental competition  Provincial and local governments can be more efficient through implicit competition as citizens see the results from other jurisdictions

8. Advantages of a Decentralized System 3) Experimentation and Innovation in regionally provided goods and services  Many jurisdictions trying different approaches produces data to figure out the “best” way  “It is one of the happy incidents of the Federal system that a single courageous state may, if its citizens choose, serve as a laboratory, and try moral, social and economic experiments without risk to the rest of the country.” – Brandeis, US Supreme Court Justice

9. Decentralized Experimentation Examples: 1)Saskatchewan experimented with healthcare in 1962 2)Different healthcare models (Canada and abroad) may yield better organization tools 3)Quebec and British Columbia are experimenting with increased childcare subsidies 4)Different universities have different tuition, with differing results. Is U of A’s $6k best, or U of Lethbridge’s $5K best?

10. EI History –1975 Reforms  Those who quit or were fired from misconduct couldn’t claim for 6 weeks (up from 3)  Age limit reduced to 65 years (from 70)  75% dependent coverage eliminated (all 66%)  Increased benefits became linked to an 8 year moving average, instead of 4% trigger

11. EI History –1977 Reforms  New entrants, re-entrants to labor force and people with repeated claims needed more weeks of employment to qualify  Exemptions for repeat claimants in high- unemployment regions  Benefits reduced to 60% of wage (from 66%)  High income earners clawed back at 30% in net income was 1.5 times maximum insurable earnings

12. Distributional Effects – Coverage (2005 Table)  EI covered 43.4% of unemployed  Gov. claims EI covers 80% of target; it is not meant to cover some categories

13. Employment Insurance Conclusion  EI has Insurance and Income Redistribution characteristics (based on loss and need)  Insurance Characteristics:  Only contributors are covered  Higher income have higher loses therefore higher benefits  Income Redistribution Characteristics  Low-income benefit enhanced through Family supplement  High-income benefits are clawed back

14. Employment Insurance Conclusion  Problem of Insurance and Income Redistribution  Balancing two goals may prevent doing either goal well  Perhaps there should be 2 separate programs?  But even 2 separate programs would interact  EI reforms (such as hour-based eligibility) have been improvements, but issues and tensions remain even after over 25 years

15. Chapter 11 Conclusion  Unemployment has increased since 1950, with fluctuations  Unemployment insurance has been essential, but often seen as increasing unemployment  EI affects unemployment through impact on layoffs, quits, employment duration, labor force participation, industrial mix, labor mobility, education, and automatic stabilization  EI is a government program due to insurance failure due to market failure and adverse selection

16. Chapter 11 Conclusion  EI has many income distribution effects:  Transfers to primary industries and construction  Transfers to Quebec and Atlantic Canada  In 1996, EI eligibility changed to hour-based  Changes over time have improved EI, but the tension between insurance and income redistribution remains