Professor Mel McMillan Discusses the Dodge Report

The Institute for Public Economics Event Examines Alberta's Capital Spending and its Finance

Economics Staff - 04 March 2016

Former Governor of the Bank of Canada, David Dodge, submitted a report to the Government of Alberta in October 2015 on provincial capital spending and finance. The major premise of the report is that Alberta is undersupplied with provincial government sector capital, and Dodge recommends that the province increase its capital stock. Further, Dodge suggests that the province could reasonably borrow to finance much of the additional capital spending required.

At the Institute for Public Economics event on February 29, Professor Mel McMillan showed that while Alberta's provincial capital is relatively low as a percentage of GDP in comparison to the other five largest provinces, it is about 21 percent greater on a per capita basis, and almost 40 percent greater when municipal government capital is included. Also, Dodge measures debt as a share of GDP, but McMillan argues that when the debt is taken as a share of government revenue, it would be large relative to other provinces, and would be a substantial burden to the Alberta government and to Albertans.

McMillan concludes that provincial capital stock is likely not underprovided and indeed may be comparatively large, while the potential for debt finance is overstated.

Comments were also heard from Professor Valentina Galvani, who made a comparison with the European experience. She noted that financial markets may accept higher government debt for long periods, then suddenly "wake up" causing a spike in interest costs.

For more on Professor McMillan's analysis, see his paper "Beyond Dodge -- Further Reflections on Alberta's Capital Spending and its Finance" or watch the video of Professor McMillan and Professor Galvani's presentations here.