The
Economic Freedom
Network

Provincial Economic Freedom in Canada 1981-1998

by Faisal Arman, Dexter Samida, and Michael Walker

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Economic Freedom Analysis of the Provinces

Quebec

Quebec is currently the ninth most economically free province in Canada. Quebec has ranked in the bottom third of provinces throughout the period of measurement, making only modest improvements in economic freedom from 1981 to 1989. This trend towards more economic freedom was negated during 1993 to 1995.

From 1981 to 1989, Quebec was able to increase its position relative to the other provinces from ninth freest to eighth freest. If this modest increase in economic freedom could have been maintained and fostered, it would have meant a brighter future for Quebec. However, economic restrictions were only loosened a little before being tightened again.

Indeed, Quebec's modest improvements were followed by large reversals in economic freedom. Government consumption increased from 22.7 percent in 1989 to 24.1 percent in 1995. During this same period, government consumption dropped from 20.7 percent to 16.7 percent of the provincial economy in Alberta. In addition, from 1993 to 1995 Quebec had the second highest transfer and subsidy sector of all the provinces, totaling from 8.3 percent to 8.5 percent of GDP. This compares with a transfer and subsidy sector of 4.2 percent of the provincial economy in Alberta in 1994. From 1981 to 1989, Quebec had the highest top marginal tax rate, dropping minimally in 1995 to the third highest. Furthermore, this province has one of the highest expenditures on government regulations, expending nearly twice as much as Alberta on regulating business (expressed as a percentage of business revenue).

Quebec ranks low in all components of the index of provincial economic freedom. Due to these low rankings, Quebec has a lot to gain by liberalizing its economy. The statistical relationship developed in this study predicts that raising economic freedom to the level found in Alberta could give Quebec citizens an $9,800 to $11,000 increase in per-capita GDP.

Quebec:Ranking for Components of the Index of Provincial Economic Freedom

	1981	1985	1989	1993	1994	1995	1998 (est.)
I.Government Operations and Regulations	7	7	6	5	(tie) 5	8	8
II.Takings and Discriminatory Taxation	9	8	9	8	9	9	9
III.Interprovincial Trade	9	10	9	10	10	10	10
IV.Regulation of the Labour Market	6	(tie) 4	(tie) 4	(tie) 5	(tie) 5	(tie) 9	(tie) 9

Part 1: Economic Freedom Ratings for the Components and Various Area and Summary Indexes: 1981, 1985, 1989, 1993, 1994, 1995, 1998 estimate.

	IPEF	Ranking
1981	3.4	9
1985	3.7	8
1989	4.6	8
1993	3.6	8
1994	3.7	9
1995	3.5	9
1998	3.5	9
			IPEF (1998 est.):		3.5	Trend:	Declining

Components of Economic Freedom
			1981	1985	1989	1993	1994	1995	1998 est.
I. Government Operations and Regulations			4.3	4.2	4.8	4.2	4.2	3.9	3.9
(a) Consumption Expenditures (% of GDP)			5.0	4.0	6.0	5.0	5.0	5.0	5.0
(b) Government Enterprises and Guarantees			2.0	2.0	2.0	4.0	4.0	4.0	4.0
(c) Price Controls			6.0	6.0	6.0	6.0	6.0	6.0	6.0
(d) Regulatory Effort			4.0	4.5	5.0	2.0	2.0	1.0	1.0

II. Takings and Discriminatory Taxation			3.4	3.6	4.7	3.3	3.4	3.4	3.4
(a) Transfers and Subsidies (% of GDP)			6.0	5.0	6.0	4.0	4.0	4.0	4.0
(b) Top Marginal Tax Rate and Threshold			0.0	0.0	4.0	4.0	2.0	2.0	2.0
(c) Direct Corporate Taxes (% of profits)			4.0	8.0	7.0	1.0	4.0	4.0	4.0
(d) Provincial Sales Tax			4.0	2.0	2.0	4.0	4.0	4.0	4.0

III. Interprovincial Trade			2.0	2.0	2.5	2.5	2.5	2.5	2.5
(a) Occupational Licensing			2.0	2.0	2.0	2.0	2.0	2.0	2.0
(b) Marketing Boards			2.0	2.0	3.0	3.0	3.0	3.0	3.0

IV. Regulation of the Labour Market			3.0	6.0	7.0	6.0	6.0	5.0	5.0
(a) Minimum Wage Legislation			3.0	6.0	7.0	6.0	6.0	5.0	5.0

Economic Freedom Rating			3.4	3.7	4.6	3.6	3.7	3.5	3.5
Ranking of Province			9	8	8	8	9	9	9

Components of Economic Freedom

I. Government Operations and Regulation
	1981	1985	1989	1993	1994	1995	1996	1997
(a) Consumption Expenditures (% of GDP)	24.3	25.2	22.7	24.5	24.2	24.1	23.4	—
(b) Government Enterprises & Guarantees	62.2	63.8	56.5	52.3	54.3	—	—	—
(c) Price Controls	Price controls are often applied in energy markets; marketing boards often influence prices of agricultural products; controls are also present in a few other areas, but most prices are determined by market forces
(d) Regulatory Effort	0.313	—	0.294	—	—	0.358	0.378	—

II. Takings and Discriminatory Taxation
(a) Transfers and Subsidies (% of GDP)	7.0	8.0	7.1	8.5	8.4	8.3	—	—
(b) Top Marginal Tax Rate and	60.4	62.8	49.8	50.5	52.9	52.9	52.9	52.9
Threshold at Which It Applies	$60,715	$62,161	$70,330	$63,315	$63,396	$63,438	$63,438	$63,409
(c) Direct Corporate Taxes (% of profits)	33%	26%	27%	39%	32%	33%	33%	33%
(d) Provincial Sales Tax	8.0	9.0	9.0	8.0	8.0	6.5	6.5	7.5

III. Interprovincial Trade
(a) Occupational Licensing	52.0	—	—	—	—	—	—	50.0
(b) Marketing Boards	43.3	42.8	41.9	40.9	39.9	40.2	39.0	—

IV. Regulation of the Labour Market
(a) Minimum Wage Legislation	65.8	49.9	46.8	52.3	52.2	54.7	56.4	—

Click Here to View Key to Areas and Components of the Index and the Weights Assigned to Each

Quebec:Recent Economic Indicators
Population 1996 (in thousands):7,388 Average annual rate of change 1985–1996:0.9 percent
Real per-capita GDP 1996: $18,550 Average rate of economic growth 1985–1990:2.0 percent; 1991–1996:0.0 percent

	1981	1982	1983	1984	1985	1986	1987	1988	1989	1990	1991	1992	1993	1994	1995	1996
Annual change (%) in population		1	0	0	0	1	1	1	1	1	1	1	1	1	1	1
Annual change (%) in real GDP		-3.1	3.4	5.0	2.8	4.2	4.7	4.3	0.9	0.2	-2.0	0.3	2.5	3.1	1.4	1.1
Annual change (%) in real GDP (average of other provinces)		-3.4	4.2	6.4	5.0	3.4	4.1	5.2	2.9	-0.3	-1.8	0.9	2.2	4.4	2.6	1.6
Annual change (%) in real per-capita GDP		-3.6	3.0	4.5	2.2	3.5	3.6	3.4	-0.3	-0.9	-2.9	-0.8	1.4	2.4	0.7	0.5
Annual change (%) in real per-capita GDP (average of other provinces)		-3.1	2.8	3.9	3.5	1.8	2.6	2.6	1.6	0.4	-1.5	-0.4	1.5	2.9	1.1
Ratio of business investment to GDP (%)	17	15	15	16	16	17	19	19	19	18	16	16	15	15	13	14
General government budget deficit (-) or surplus (+) (% of GDP)	-2	-2	-2	-1	-2	-2	0	+1	0	-1	-2	-3	-2	-3	-1
Unemployment rate (%)	10.5	13.9	14	12.9	11.9	11	10.3	9.4	9.3	10.2	12	12.8	13.2	12.2	11.3	11.8

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