The Adversarial Politics of Fiscal Federalism: Tax Policy and the Conservative Ascendancy in Canada, 1988–2008

Abstract

When and how do tax regimes become sites of social protest and support broader movements of social policy reform? This question has drawn increasing interest from political sociologists and political scientists who have looked at the ways in which tax regimes create political cleavages that create the foundations for major shifts in state policy making or become the focal points of collective identity formation, leading to “tax protests.” In this paper we seek to contribute to this line of inquiry through an examination of the politics of Canadian tax policy from 1988 through 2008. What makes this case so compelling is that during these years the debates over tax policy raged over, first, the implementation and, later, the reduction of a federal value-added tax (VAT). However, rather than fueling a broad-based tax protest, debates over the VAT heightened interprovincial political cleavages that allowed the Conservatives to tie the question of the VAT to a broader economic program of typically “neoliberal” reforms: improving private-sector competitiveness and shrinking the size of the state. Drawing on a statistical analysis of the Canadian Election Study and an historical analysis of the conflict over taxation, we show how the federal structure of the Canadian state, and its policies of revenue equalization across the provinces, created an interprovincial adversarial politics that made sales tax reduction a key issue for Canadian voters. Our findings show how recognizing the historically contingent and institutionally specific context of struggles over tax policy helps to explain cross-national variation in the politics of taxation.