Calm counsel : Fiscal federalism and provincial credit risk

The report argues that the chance of a near-term debt crisis — in the form of significantly higher interest rates — is minimal. [...] Provincial debts are large and growing and the provinces are far more vulnerable to interest-rate shocks than the federal government. [...] This has resulted in a series of perverse redistributive outcomes, the most notable of which is a net transfer of tax dollars from residents of Ontario, a province with below-average fiscal capacity. [...] Journalists and the federal finance minister warn of credit rating downgrades and interest rate hikes;2 the Fraser Institute compares Ontario to Greece;3 and the MacDonald-Laurier Institute forecasts a greater than 50 per cent chance of default for eight provinces over the next 30 years.4 By all indications, bond markets reject these dismal outlooks. [...] As a percentage of GDP, the provinces are the most indebted subnational sector in the Organization of Economic Co-operation and Development (OECD).