Fiscal Federalism in Theory and Practice: The Case of Income Supports in Australia and Canada

This chapter compares and contrasts the theory and practice of fiscal federalism between Australia and Canada in relation to income supports. Of particular interest is whether any differences in institutional assignment and practice can be explained within the theoretical context of the “assignment problem.” Australia and Canada are federations known to be diametrically-opposed institutionally with respect to fiscal decentralization, including in terms of income supports. This contrast also holds true in the practice of fiscal federalism, with the caveat that ongoing developments in terms of income supports (notably through the use of tax expenditures rather than program spending) imply more centripetal forces at play in Canada than its institutional setting might otherwise suggest. Additionally, while well-suited to the Australian federation, the standard theoretical framework used to analyze the assignment problem is found to be lacking when applied to Canada, likely due to conflicting influences on the institutional design and practice of fiscal federalism.