Cost-sharing versus block-funding in a federal system: a demand systems approach.

This paper employs a maximizing framework, consistent with the axioms of consumer preference, to analyse local government's choice of spending on different social services. Within this framework it is possible to include both block-funding and cost-sharing intergovernmental transfer schemes. Canada's movement to block-funding from the cost-sharing method of financing provincial expenditures on hospitals, medical care, and post-secondary education is analysed. The results indicate that the provincial governments' actions are generally consistent with a standard maximizing model of consumer behaviour and that the change to block-funding had a significant impact on real provincial funding of some previously cost-shared social services. [ABSTRACT FROM AUTHOR]