Study
| EST. READ TIME 1 MIN.44 per cent chance Ottawa increases debt over 10-year period; likelihood of failure jumps to 59 per cent over 20 years
Adrift without an Anchor: Federal Fiscal Policy and Canada’s Long-Term
Debt Ratio
- This research bulletin tests whether the federal government’s fiscal policies are consistent with its fiscal anchor—a declining debt ratio over the next 25 years—using a Monte Carlo simulation model with random shocks to the growth rate similar to those experienced by the Canadian economy over the last 40 years.
- Since the pandemic, the federal government has postponed reducing its deficit because it has continually revised program spending upward.
- The deterioration in the federal fiscal position over the past year, with larger projected deficits, interest rates, and debt levels, has increased the likelihood of higher debt ratios in the future.
- Our model indicates that there is a 44% chance that the net debt ratio will be higher in 2036/37 and a 59% chance that it will be higher in 2046/47.
- We conclude that the federal government’s claim that its fiscal policies will lead to a downward trend in its debt ratio is not credible because it ignores the likelihood that future recessions will result in larger budget deficits.
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Bev Dahlby
Senior Fellow, Fraser InstituteBev Dahlby, Senior Fellow of the Fraser Institute, attended St. Peter’s College, the University of Saskatchewan, Queen’s University and theLondon School of Economics. He was Professor of Economics at the University of Alberta from 1978 to 2012 and Distinguished Fellow in Tax and Economic Growth at the School of Public Policy at the University of Calgary from 2012 to 2020. Bev has published extensively on tax policy and fiscal federalism. He has served as an Associate Editor of Canadian Public Policy and a member of the editorial board of the Canadian Tax Journal. He has been a member of the Executive Council of the Canadian Economics Association and the National Statistics Council. Bev has also served as a policy advisor to the federal and provincial governments. In 2010-11, he was a member of the Expert Panel on Federal Support to Research and Development (Jenkins Panel) and the Ecofiscal Commission from 2014 to 2019. In July 2016, he was appointed Chair of the British Columbia Commission on Tax Competitiveness by the BC Minister of Finance. In May 2019, Bev was appointed by the Government of Alberta to the Blue Ribbon Panel to review the province’s finances. His international experience includes advisory work on tax reform for the IMF in Malawi, for the Thailand Development Research Institute, and for the World Bank in Brazil and Mexico.… Read more -
Ergete Ferede
Professor of Economics, MacEwan University
Ergete Ferede is Professor of Economics at MacEwan University in Edmonton, where he has held an academic appointment since 2006.He received his Ph.D. in economics from the University of Alberta. He has previously taught at Addis Ababa University (Ethiopia), University of Alberta, and University of Windsor. Dr. Ferede has been actively engaged in research on taxation policy and intergovernmental grants. He also conducts research on the efficiency costs of taxes, the effects of taxes on various economic activities, corporate income-tax policy, and tax reform. His research has been published in the National Tax Journal, International Tax and Public Finance, Small Business Economics, and Public Finance Review.… Read more