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On the Incidence of the Manufacturers' Sales Tax and the Goods and Services Tax

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Author Info
G. C. Ruggeri
K. Bluck
Abstract

In April 1989, the federal Minister of Finance announced plans to implement the Goods and Services Tax (GST), an invoice- based value-added tax, as a replacement for the present Manufacturers' Sales Tax (MST). One of the stated reasons for this change was the concern about the regressivity of the MST. The purpose of this paper is to investigate the distributional effects of replacing the MST with the GST. Baum's Relative Share Adjustment (RSA) is used to estimate the incidence of the MST, a broad-based VAT and the GST, assuming 1986 revenue and consumption patterns. The results show that the VAT and, to a lesser extent, the GST are more regressive than the MST. This distributional shortcoming of the GST can be corrected through a low income credit financed either by a high income surtax or a higher GST rate.

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File URL: http://economics.ca/cgi/jab?journal=cpp&view=v16n4/CPPv16n4p359.pdf
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Publisher Info
Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 16 (1990)
Issue (Month): 4 (December)
Pages: 359-373
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Handle: RePEc:cpp:issued:v:16:y:1990:i:4:p:359-373

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  1. Browning, Edgar K, 1978. "The Burden of Taxation," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 649-71, August. [Downloadable!] (restricted)
  2. John Whalley, 1984. "Regression or Progression: The Taxing Question of Incidence Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 654-82, November. [Downloadable!] (restricted)
  3. Davies, James B & St-Hilaire, France & Whalley, John, 1984. "Some Calculations of Lifetime Tax Incidence," American Economic Review, American Economic Association, vol. 74(4), pages 633-49, September. [Downloadable!] (restricted)
  4. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September. [Downloadable!] (restricted)
  5. Suits, Daniel B, 1977. "Measurement of Tax Progressivity," American Economic Review, American Economic Association, vol. 67(4), pages 747-52, September. [Downloadable!] (restricted)
  6. Chun-Yan Kuo & Thomas Mcgirr & Satya Poddar, 1988. "Measuring the Non-Neutralities of Sales and Excise Taxes in Canada," Development Discussion Papers 1988-8, JDI Executive Programs. [Downloadable!]
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