Earmarked Grants and Accountability in Government. Richard Bird and Michael Smart University of Toronto Copenhagen, 17-18 September 2009. Introduction . What explains recurrent demands for earmarking and other forms of conditionality in intergovernmental grants?
Richard Bird and Michael Smart
University of Toronto
Copenhagen, 17-18 September 2009
Standard view: earmarked grants are Pigouvian subsidies for interjurisdictional spillovers. But this does not explain either extent of earmarking or its evolution over time.
Alternative “second generation” views emphasize role of earmarking to address information and incentive problems between governments, and with voters.
Earmarked grants may substitute for block grants that seek to redistribute on the basis of differences in costs, needs, or local demands for public services.
When centre is imperfectly informed about cost drivers, matching actual expenditures may improve equity, albeit at the cost of distorting local spending
Such grants should be most prevalent when central government taste for interjurisdictional redistribution is large; the move to block grants in some countries may largely reflect changing regional politics.
Move to block grants for health, social services during 1990-95 to address federal deficits, reduce provincial spending
In face of rising health costs, provincial governments repeatedly demanded new transfers so that federal government “pay its share”
Federal spending for health transfers were repeatedly revised upwards during 1997-2006 period – effectively restoring health matching grants ex post
Were provincial arguments effective despite provincial access to essentially all federal tax bases – or because of it?