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Livio; I'm just curious to know what deflators you used to calculate "real" spending by both levels of govt.

I ask only because we've heard for decades that the price of health care has been rising much faster than that of the rest of the economy. One result of that is that health care costs have become much larger shares of total provincial spending (and an aging population has only made its impact on provincial budgets even more important.)

So when you compare "real" per capita spending by the two governments, I'm wondering whether this is really real. Does it correct for changes in *relative* prices? If not, do we have any idea how big a difference changes in relative prices have made?

Hi SvN: I just used a standard GDP deflator - series v62788999 - and applied it to both Federal and Ontario spending. I suppose you could take Ontario's spending and divide it into health and non-health and use separate deflators like the ones provided out of the CIHI National Health Expenditures series. For Ontario, the Government Current Expenditure Implicit Price Index (1997=100) goes from 51.1 in 1981 to 154.8 in 2013 (a 203% increase) while the total Health Care Implicit Price Index 49.9 to goes from 148.4 (a 197% increase). The increase in the GDP deflator over the same period is definitely less - about 140 percent. Thus both government spending and health spending have risen at a faster rate but their increases have been similar. However, if this is done for Ontario, the federal numbers should also be deflated using the Government Current Expenditure Implicit Price Index and that goes from 53 in 181 to 155.7 in 2013 - an increase of 194 percent. If I deflate the numbers using the Government Current Expenditure Price Index 1997 dollars for Canada, federal real per capita revenues between 1981 and 2014 go from $5117 to $$4898 while expenditures go from $6309 to $4949. Using the GCEIMPI for Ontario, Ontario real per capita revenues go from $3837 to $5485 while expenditures go from $4232 to $6016. If you plot these numbers as in Figure 3, you get pretty much the same diagram with respect to the trend lines.

Thanks! That's a very interesting answer.

The baseball fan from out of town said anyone in my country can learn economics and contribute to the field my testing a hypothesis in one jurisdiction and applying in other if successful (Universal Health Care, maybe daycare, the lack of co-ordinated pharmaceutical purchases is the anti-thesis). But he said macro still has value as it is sometimes the only tool available to a central bankers. He said giving a CBer the ability to control accelerated depreciation rates might be good.

The biggest mystery I'm working on from the Budget is accelerated depreciation. We have increased the rate of it now while our interest rates are low but while the dollar is low against the USD. I wonder if there are not better ways to automatically tweak this rate in relation to employment and debt and exchange rates between mature economies? Funding it when oil was higher would have been a nice counter-cyclical innovation for an exporting nation such as ours.

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