The Role of the Canadian Federal Government in Infrastructure Financing

Abstract

Federal investment in provincial and municipal infrastructure has increased almost tenfold over the past decade from approximately half a billion dollars in 2004 to nearly $5 billion in 2014. Infrastructure has traditionally been financed, owned and operated by municipalities and provinces, but this represents a shift to a greater federal presence. This paper will examine the role of the Canadian federal government in financing municipal and provincial infrastructure in a decentralized federation. It will analyze if projects funded by the federal government are consistent with the models of fiscal spillovers that provide a rationale for federal funding of provincial and municipal infrastructure. The federal government may also be motivated to fund provincial or municipal infrastructure to account for vertical or horizontal fiscal imbalances, or pursue a federal policy objective. However, in these cases, strong federal involvement in the project selection process is rarely justified. This paper will also analyze Canada’s current federal infrastructure programs to identify how they relate to the above motives, and whether the design of the programs is the best method to meet achieve these.