Just How Much Bigger is Government in Canada? A Comparative Analysis of the Size and Structure of the Public Sectors in Canada and the United States, 1929-2004

Abstract

We compare the size, structure and evolution of the public sectors in Canada and the United States primarily using national income accounting data. In the course of this investigation, which is accompanied by a substantial spreadsheet covering the period from 1929 to 2003/2004, questions are raised about the appropriate definition of the public sector for comparative purposes. Using a definition that consistently includes nonprofit universities and hospitals in both countries, the data illustrate, first, that there is a surprising degree of conformity in the level and rate of change of the expenditure size of government (relative to GDP) between the U.S. and Canada over a long period, as well as in some aspects of expenditure structure such as transfers to persons. Second, the comparative perspective highlights differences during the Great Depression, the immediate post WWII period, and what we call 'the bulge' in consolidated Canadian spending relative to the U.S. in the period between 1960 and 2004 that peaked in 1992, a bulge that remains even after defense spending is netted out, suggesting that explanations of the evolution of differences over time across countries may be more meaningful than those that focus on permanent differences in size. Third, application of a newly constructed Fisher type government deflator for Canada indicates that real government spending relative to real aggregate income as of 2003 was virtually the same in the two countries, at about 27 percent of real GDP. The paper concludes with a number of provocative questions that arise in the course of our investigation.

Keywords: size of government, structure of public expenditure, comparative analysis, national accounts, Canada vs. United States

JEL Classification: H10, H11, H40, H50, H70