Federal and provincial/territorial transfers to municipalities in Canada account for about one fifth of municipal revenues, on average. The majority of these transfers come from the provincial/territorial governments, and most of them are earmarked for specific purposes. Nevertheless, many provinces/territories provide an equalization transfer to municipalities that is usually based on a measure of fiscal capacity. Two provinces share provincial sales tax revenues with municipalities and most provide unconditional transfers based on population, road kilometres, or other variables. Many provinces provide separate transfers to rural municipalities to reflect the challenges these communities face because they may be more sparsely developed, more remote, and experience colder weather. These challenges result in higher costs for heating, housing, and transportation, and the inability to achieve economies of scale in the provision of services. These municipalities are also likely to have smaller tax bases (and less ability to raise revenue). An implicit form of equalization also exists where urban and rural municipalities in Canada have been amalgamated into one municipality. Equalization transfers, transfers to rural municipalities, and municipal amalgamation all help smaller and rural municipalities provide a reasonable level of service by levying reasonable tax rates, although they do not fully achieve that goal.