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

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  • G. C. Ruggeri
  • K. Bluck
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    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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    Bibliographic 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. 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.
    2. Suits, Daniel B, 1977. "Measurement of Tax Progressivity," American Economic Review, American Economic Association, vol. 67(4), pages 747-52, September.
    3. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    4. Browning, Edgar K, 1978. "The Burden of Taxation," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 649-71, August.
    5. Chun-Yan Kuo & Thomas Mcgirr & Satya Poddar, 1988. "Measuring the Non-Neutralities of Sales and Excise Taxes in Canada," Development Discussion Papers 1988-08, JDI Executive Programs.
    6. 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.
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    Cited by:
    1. Michael Smart & Richard M. Bird, 2009. "The Economic Incidence of Replacing a Retail Sales Tax with a Value-Added Tax: Evidence from Canadian Experience," Canadian Public Policy, University of Toronto Press, vol. 35(1), pages 85-97, March.

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