Page 1 Introduction What is the best approach for coping with provincial revenue shocks and provincial revenue volatility? Canada’s current approach involves a combination of both national-level insurance, in the form of the federal government’s Fiscal Stabilization Program (FSP), and self-insurance options should a province choose to implement any. [...] What is the extent of revenue volatility in the provinces and how has it changed over time? What is the current level of national risk sharing? What are the key obstacles to improving upon Canada’s current approach to dealing with provincial revenue shocks? Revenue Volatility in Canadian Provinces Consider first some data on revenue volatility in Canadian provinces. [...] Landon and Smith (2010) find that the volatility of Alberta’s own-source revenue is more than double the revenue volatility in British Columbia, Ontario, and Saskatchewan. [...] a The ratio of the standard deviation of the differences in real, per capita own-source revenues from an exponential trend to the average value of the series, multiplied by 100. [...] Alberta’s experience with the Alberta Heritage Savings Trust 1 See Boadway and Eyraud (2018) for a broader discussion of the economic rationales for the allocation of expenditure and revenue functions between government levels in decentralized countries.
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