Provincial government expenditures in Canada: an empirical analysis

Abstract

Most empirical studies have sought to explain the overall growth of the total government expenditures. Few studies have focused on the growth of spending at the provincial level. This article seeks to fill the gap. It examines the growth of government expenditures in Canadian provinces. Data spanning the past three decades are used to explain the growth of provincial government expenditures in Canada and to test alternative hypotheses. From a basic general theoretical model, three empirical models are developed and tested. It is concluded that the growth of the private sector share of the Provincial Gross Domestic Product (PGDP), capacity utilization and factors such as federal transfer payments to the provincial governments best explain the growth in expenditure at the provincial level. The expenditure policies of provincial governments are found to be independent of the political stance of the political parties in power. Estimated short-run and long-run ‘income’ elasticities of provincial government exp...