Municipal Financing Opportunities: How Do Cities Use Their Fiscal Space?

• Published in: IDEAS Working Paper Series from RePEc
• Main Authors: Meloche, Jean-Philippe, Vaillancourt, François
• Format: Paper
• Language: English
• Published: St. Louis Federal Reserve Bank of St. Louis 01.01.2021
• Subjects: Diversification

This study investigates how Canadian cities are using the revenue sources their provincial laws enable them to use. Drawing on data from both Statistics Canada and municipal financial statements for the largest city in each of the 10 provinces, the authors examine municipal spending and assess how much money was obtained from most of their sources of revenue. In general, most of the financing tools available to the Canadian cities studied yield very low levels of revenue. The authors also considered whether new revenue sources granted to municipalities by their provincial governments really contribute to the diversification of their revenues and found that adding more tools for municipal financing does not seem to contribute to the diversification of revenues. Rather, diversification is mainly driven by balancing revenues between property tax (the major revenue source for all the cities) and user charges. Furthermore, the data suggest that the relationship between diversity and the ability to raise more revenues is not uniform among this group of cities. The authors conclude that giving more revenue sources to municipalities does not automatically result in more diversified revenues or in more services. The sample is too small, however, to generalize or confirm these results. The authors note the difficulty of finding and using comparable data on the finances of Canadian cities and suggest that efforts to remedy this data gap might lead to greater ease in comparing cities.