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Do Federal Transfers Stabilize Regional Government Revenues? Evidence from Australia and Canada

PFM, Vol. 4 No. 4, (2004)

This paper looks at the design of intergovernmental transfers in two mature
federations, Australia and Canada, in an effort to determine empirically how well
transfers in these countries mitigate shocks to regional government revenues. Two
general results emerge. First, the average impact of federal transfers in Australia
and Canada is not generally stabilizing for regional government revenues. Second,
using the methodology of von Hagen and Hepp, we found little evidence of a
marginal stabilizing impact of federal transfers on Australian state revenues. For
Canada, we found evidence of somewhat larger impacts.

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