--- canonical_url: "https://csls.ca/ipm-archive/ipm-issue-11/fixing-fiscal-federalism-to-improve-canadas-productivity-performance/" title: "Fixing Fiscal Federalism to Improve Canada’s Productivity Performance" author: name: "CSLS" url: "https://csls.ca/author/cslc/" date_published: "2026-07-13T06:53:26+00:00" date_modified: "2026-07-13T06:53:26+00:00" post_type: "ipm" summary: "" ipm_issue_period: - "Fall 2005" ipm_keyword: - "Canada" - "capital investment" - "competitiveness" - "employment insurance" - "fiscal federalism" - "interprovincial transfers" - "productivity" - "tax reform" - "urbanization" ipm_research_theme: - "Policy and institutions" ipm_country_focus: - "Canada" - "United States" featured_image: "https://csls.ca/wp-content/uploads/2026/06/IPM_50_banner.webp" status: "publish" --- # Fixing Fiscal Federalism to Improve Canada’s Productivity Performance Canonical URL: https://csls.ca/ipm-archive/ipm-issue-11/fixing-fiscal-federalism-to-improve-canadas-productivity-performance/ # Fixing Fiscal Federalism to Improve Canada’s Productivity Performance [Download full PDF article](https://csls.ca/wp-content/uploads/2026/07/IPM-Issue-11-3-Milway.pdf) Cite this article × Cite this article as: Milway, James. 2005. “Fixing Fiscal Federalism to Improve Canada’s Productivity Performance.” International Productivity Monitor, No. 11 (Fall 2005): 14–20. https://www.csls.ca/ipm-archive/ipm-issue-11/fixing-fiscal-federalism-to-improve-canadas-productivity-performance/ ## Author: - James Milway Institute for Competitiveness and Prosperity, Ontario ## IPM Issue 11 Fall 2005 pp. 14–20 ## Related IPM articles [The Relationship between Efficiencies Defenses for Mergers and TFP Growth Robin Shaban Fall 2025 | IPM Issue 49 | pp. 82–102](https://csls.ca/ipm-archive/ipm-issue-49/the-relationship-between-efficiencies-defenses-for-mergers-and-tfp-growth/) [Appendix: Variable Definitions and Country/Sector Coverage for Regulatory Reform Analysis Gilbert Cette, Jimmy Lopez, Giuseppe Nicoletti, Océane Vernerey Fall 2025 | IPM Issue 49 | pp. 1–18](https://csls.ca/ipm-archive/ipm-issue-49/appendix-variable-definitions-and-country-sector-coverage-for-regulatory-reform-analysis/) [Adult Skills and Productivity: New Evidence from PIAAC 2023 Dan Andrews, Balázs Égert, Christine de La Maisonneuve Fall 2025 | IPM Issue 49 | pp. 41–63](https://csls.ca/ipm-archive/ipm-issue-49/adult-skills-and-productivity-new-evidence-from-piaac-2023/) [The Potential Impact of Pro-competitive Regulatory Reforms on Productivity and Growth in Canada Gilbert Cette, Jimmy Lopez, Giuseppe Nicoletti, Océane Vernerey Fall 2025 | IPM Issue 49 | pp. 3–40](https://csls.ca/ipm-archive/ipm-issue-49/the-potential-impact-of-pro-competitive-regulatory-reforms-on-productivity-and-growth-in-canada/) [IPM Issue 49 Editors’ Overview Andrew Sharpe, Bart van Ark, Paul Schreyer Fall 2025 | IPM Issue 49 | pp. 1–2](https://csls.ca/ipm-archive/ipm-issue-49/) [Appendix: UK Productivity Growth Rates Across Data Vintages and Studies Josh Martin Spring 2025 | IPM Issue 48 | pp. 65–73](https://csls.ca/ipm-archive/ipm-issue-48/appendix-uk-productivity-growth-rates-across-data-vintages-and-studies/) [Opportunities and Risks of Artificial Intelligence for Productivity Francesco Filippucci, Peter Gal, Katharina Laengle, Matthias Schief, Filiz Unsal Spring 2025 | IPM Issue 48 | pp. 1–26](https://csls.ca/ipm-archive/ipm-issue-48/opportunities-and-risks-of-artificial-intelligence-for-productivity/) [Using Ecosystem Accounting to Integrate the Environment in Measures of Multifactor Productivity Carl Obst Fall 2024 | IPM Issue 47 | pp. 87–108](https://csls.ca/ipm-archive/ipm-issue-47/using-ecosystem-accounting-to-integrate-the-environment-in-measures-of-multifactor-productivity/) [Eroding Natural Capital: An Alternative Explanation for the Secular Decline in Productivity Growth Christina Caron Fall 2024 | IPM Issue 47 | pp. 109–147](https://csls.ca/ipm-archive/ipm-issue-47/eroding-natural-capital-an-alternative-explanation-for-the-secular-decline-in-productivity-growth/) [How Does Industrial Policy Impact Output, Hours and Productivity? The Canadian Experience Tim Sargent Fall 2024 | IPM Issue 47 | pp. 39–53](https://csls.ca/ipm-archive/ipm-issue-47/how-does-industrial-policy-impact-output-hours-and-productivity-the-canadian-experience/) ## Abstract ## Résumé EN FR Copy link Email LinkedIn This article argues that Canada’s system of fiscal federalism, which results in large interprovincial transfers from have to have-not provinces, promotes consumption over investment and therefore fails to maximize Canada’s productivity potential. The author attributes Canada’s widening prosperity gap with the United States primarily to lower urbanization, lower cluster intensity, lower educational attainment, and lower capital investment. Policy recommendations include reforming Employment Insurance into a true insurance program, removing its interprovincial transfer elements, and shifting the tax system from business income to consumption. Cet article soutient que le système de fédéralisme fiscal du Canada, qui entraîne d’importants transferts interprovinciaux des provinces riches vers les provinces pauvres, favorise la consommation au détriment de l’investissement et ne maximise donc pas le potentiel de productivité du Canada. L’auteur attribue le creusement de l’écart de prospérité du Canada avec les États-Unis principalement à un taux d’urbanisation plus faible, une intensité de grappes industrielles plus faible, un niveau de scolarité plus bas et un investissement en capital plus faible. Les recommandations politiques comprennent la réforme de l’assurance-emploi en un véritable programme d’assurance, la suppression de ses éléments de transfert interprovincial et le déplacement du système fiscal du revenu des entreprises vers la consommation. [Download full PDF](https://csls.ca/wp-content/uploads/2026/07/IPM-Issue-11-3-Milway.pdf)