The underground economy and equalization payments.

[westernvicki]

http://www.theglobeandmail.com/report-on-business/economy/the-size-of-canadas-underground-economy/article30522066/

Interesting to note the size of the underground economy in Canada and by province basis these statistics, some provinces are clearly worse than others.

The question I have is: the equalization formula is used to balance or equalize income in Canada, but is it actually benefiting provinces where there is a higher % of unreported income?

[chuckChuck]

I am surprised by how small the estimate of the underground economy is. It looks like provinces with lower incomes or higher costs of living have slightly higher amounts of an underground economies.

I think the equalization formula is designed to allow provinces with lower GDP and income levels to provide a similar level of services to other provinces. Without it the poorer provinces would have less health care and education spending and other social programs.

It is paid out of federal tax revenues which are collected based on income levels. Alberta still has higher incomes and higher GDP per capita than the maritimes and quebec.