This problem uses equalization data provided in an Excel spreadsheet available on the OnlineLearning Centre at www.mcgrawhill.ca/olc/rosen.
a. Using the template and data provided in the spreadsheet, calculate the tax base deficiency and equalization entitlement for each tax base for Newfoundland, Nova Scotia, New Brunswick, Manitoba, Saskatchewan, Alberta, and B.C. Use the calculations for Ontario, Quebec, and PEI as a guide. Which provinces have a deficiency in all five tax bases? Which provinces have a surplus in all five bases?
b. Based on these illustrative calculations, what is the total amount of equalization required? What provinces are equalization recipients? Note that if a province has a negative entitlement overall, it receives a zero transfer. Also note that in practice, several other adjustments are made to arrive at final equalization entitlement entitlements. We abstract from these adjustments for the purposes of this example.
c. Suppose that included natural resource revenues increase by $1 billion and assume that provincial tax base shares are unchanged. What happens to aggregate equalization payments? Which recipient province receives the largest share of the increase in total equalization? Can you explain why?