The Economic Consequences of Quebec Sovereignty

This paper reviews the issues that would arise if Quebec were to separate from Canada. It also presents quantitative estimates of the likely orders of magnitude of their economic impact both on Quebec and the Rest of Canada. Its overall conclusion is that Quebec would be much harder hit than the rest of Canada if Quebec separates. Real output in Quebec could easily be depressed in the short run by as much as 10 percent and in the long run by 5 percent. In the short run, the output loss would be triggered by a crisis of confidence resulting from separation. In the long run, output loss would be caused by the required transfer of resources to the foreign sector (necessitated by the elimination of the existing fiscal gain in transactions with the federal government), by the emigration of anglophones, and by higher public debt charges resulting from the increased debt burden. The transfer would be made more difficult by the need to ad just in the soft and dairy sectors and by the probable loss of Churchill Falls's power, but it could be facilitated by increased taxes. For the rest of Canada, the economic costs, which can be quantified, would be substantially lower than for Quebec. And for Canada there also would be some offsetting economic gains. The net short-run costs would only be about one to two percent of GDP and would result mainly from the short-run loss of confidence caused by the separation of Quebec. The long-run quantifiable costs would be small – probably less than the quantifiable benefits.economic impact, Quebec separation, break-up of Canada, Sovereignty-Association