Globalization, Politics and Provincial Government Spending in Canada

Using time series, cross-sectional econometric modelling, an analysis is made of competing political and economic determinants of Canadian provincial government fiscal policy during the 1980s and 1990s. It is determined that provincial government spending responses to trade liberalization are dependent upon the ideology of the government and conditioned by the degree of provincial unionization. When relatively high levels of unionization prevail, those governments that typically spend the most reduce total spending to a lowest common denominator. However, when unionization is low, provincial government spending responses to increasing trade openness is primarily compensatory. This is in contradiction to the "race to the bottom" theory. The contingent nature of the provincial government spending response to trade openness means that despite overall pressures for fiscal convergence, political, economic and regional factors continue to contribute to distinct provincial spending policies.