Federal Spending Power

Notes prepared by Tammy Schirle for an appearance before the House of Commons Standing Committee on Finance for their study of the federal spending power and its use.

Monday April 27, 2026

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Thank you for inviting me to appear before the committee.

Regarding federal spending power, I know there are many legal scholars and political scientists with much to say. I, however, am neither of those. I am a Professor of economics at Wilfrid Laurier University. My research has focused on Canadian labour markets and public policy, with an emphasis on retirement, pension policy, and understanding how men and women move differently through our labour markets.

From that perspective, I will present my general thoughts on when it appears best to use federal spending power. To fix ideas, I will focus on Canadians’ need for early learning and child care services.

First, I question whether there is a problem common across provinces that cannot be solved by allowing the market to operate freely? Here, I’m primarily looking for what economists call a market failure, which is really identifying situations where something is preventing the market from operating efficiently and, consequently, some resources are being wasted instead of making Canadians better off.

The market for early learning and child care services is a market that suffers from such failures. In this market, the most significant cause of market failure is information asymmetry. Put simply, parents are unable to fully observe the quality of care a child receives while they are not present, which ultimately leads to an excessive supply of lower-quality care in a free market. Credit constraints, which reflect parents’ inability to borrow money to pay for care, are a second cause of market failure, leading to less-than-optimal levels of care being purchased. As well, there are significant long-term benefits to children and society as a whole, that individual parents may not consider in their decision-making, which leads to under-investment in these services. For more details on this market, I recommend reading Elizabeth Dhuey’s work published in Canadian Public Policy/Analyse de politiques in 2024.

These market failures are common across provinces, and we have seen opportunities for the provinces to learn from each other in designing policy for early learning and child care services. As you know, Quebec was a leader in developing affordable childcare policies, from which we learned about the impact on local labour markets as well as the importance of managing quality of care when facing high demand for services. We continue to learn from Quebec’s early experience as recent research has shown the importance of childcare for reducing the career costs of motherhood and even grandmotherhood.

A second factor I consider when judging federal spending is whether a policy has the potential to reduce frictions across regional markets. In the context of early learning and child care, one could think of the average mom deciding whether to take a job in another region, and facing constraints associated with her need for childcare – is it available, affordable, and high quality? By having some national standards and programs, we might improve how families flow across markets as well as women’s ability to remain attached to the labour force long-term. There is a nice parallel here with the benefits of having the Canada Pension plan -  a family may also be thinking ahead to their retirement, and one of the Canada Pension Plan’s best features is its portability between jobs anywhere across the country, making it easier to make a big career move.

A third factor I consider when judging federal spending is the size of benefits that accrue to Canadians over time. This may be referred to as the marginal value of public funds. To fix ideas, we might think of a young woman who is graduating high school in Antigonish. She might want to come to Waterloo to study Engineering, with the potential for working in Calgary or Montreal and retirement in Fredericton. Along the way she will become a mother, but her career plans will be affected by the availability of affordable high-quality care and education for her child. Expecting to find the services she needs, she can comfortably go ahead with her plan. Empirically, the benefits of such programs have proven sizeable – children receive high quality care, women can find greater continuity in their careers, ultimately earning more while children are young and over their lifetime, and even relying less on grandparents’ earlier-than-optimal retirement to care for grandchildren. That better career leads to a better pension, and less reliance on programs that support low-income seniors. Despite the short-term costs involved within a specific province, the benefits accrue over the course of many decades and potentially across many provinces.

To summarize, I see three important questions to ask regarding the use of federal spending power. First, are there market failures shared by provinces that we can help manage? Second, is there potential for the policy to reduce frictions across markets? Third, what are the full benefits of a policy over time and across provinces?

With that, I thank you for your attention and would welcome questions from the Committee.

References I found useful when preparing these notes:

Baker, Michael, Jonathan Gruber, and Kevin Milligan. 2026. “Investing in Mothers? The Long-Run Impact of a Universal Child Care Program on Maternal Work and Income” March 2026 Draft available at https://sites.google.com/view/kevin-milligan/home/research/bgm-childcare3

Connolly, Marie,  Marie Mélanie Fontaine, and Catherine Haeck. 2023. “Child Penalties in Canada? Canadian Public Policy, Volume 49(4). https://doi.org/10.3138/cpp.2023-015

Dhuey, Elizabeth. 2024. “Will the Increased Investment in Early Childhood Education and Care in Canada Pay off? It Depends!” Canadian Public Policy, Volume 50(S1), https://doi.org/10.3138/cpp.2023-061

Graefe, Peter and Nicole Fiorillo. 2023. “The Federal Spending Power in the Trudeau Era: Back to the Future?” IRPP Study, Centre for Excellence on the Canadian Federation. (Accessed at https://centre.irpp.org/research-studies/the-federal-spending-power-in-the-trudeau-era )

Sencer Karademir, Jean-William Laliberté, and Stefan Staubli. 2026. “The Multigenerational Impact of Children and Childcare Policies” Journal of Labor Economics, Volume 44(1). https://www.journals.uchicago.edu/doi/10.1086/732358

Kingsbury, Mila, Karine J. Lavergne, Donna Schaffer Lero, and Leanne Findlay. 2026. “Parental Preferences and Unmet Demand for Child Care for Children Aged Zero to Five Years in Canada” Canadian Public Policy, Volume 52(1), https://doi.org/10.3138/cpp.2024-045.