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The Political Economy of Taxation: Some Evidence for Canada

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  • André Blais
  • François Vaillancourt

Abstract

The article examines the determinants of variations in the effective average tax rate among Canadian manufacturing industry. It replicates a previous study (Salomon and Siegfried, 1977) on the U.S. corporate tax that found relationships between the economic structure and tax avoidance rates. Some methodological problems in the study are identified, which raise doubts about their conclusions. It is shown that effective tax rates fluctuate substantially over time and that the results may be sensitive to the year selected for analysis. As a consequence, tax-avoidance rates are regressed against a number of independent variables in two different years: 1974 and 1979. The overall weakness of the relationship is striking. With our best measure of the tax-avoidance rate, 2 out of 12 variables are significant in 1974 and one in 1979. These findings suggests that the corporate income tax may not be as important an instrument of industrial policy as it is sometimes claimed to be.

Suggested Citation

  • André Blais & François Vaillancourt, 1988. "The Political Economy of Taxation: Some Evidence for Canada," Public Finance Review, , vol. 16(3), pages 315-329, July.
    • Handle: RePEc:sae:pubfin:v:16:y:1988:i:3:p:315-329
    DOI: 10.1177/109114218801600304
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    References listed on IDEAS

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    1. Richard E. Caves, 1976. "Economic Models of Political Choice: Canada's Tariff Structure," Canadian Journal of Economics, Canadian Economics Association, vol. 9(2), pages 278-300, May.
    2. Barry P. Bosworth, 1985. "Taxes and the Investment Recovery," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 1-45.
    3. Ronald S. Saunders, 1980. "The Political Economy of Effective Tariff Protection in Canada's Manufacturing Sector," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 340-348, May.
    4. Vittorio Corbo & Andre Martens, 1979. "Effective Protection and Factor Inputs in Quebec Manufacturing," Canadian Journal of Economics, Canadian Economics Association, vol. 12(3), pages 426-438, August.
    5. Salamon, Lester M. & Siegfried, John J., 1977. "Economic Power and Political Influence: The Impact of Industry Structure on Public Policy," American Political Science Review, Cambridge University Press, vol. 71(3), pages 1026-1043, September.
    6. G. K. Helleiner, 1977. "The Political Economy of Canada's Tariff Structure: An Alternative Model," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 318-326, May.
    7. Ray, Edward John, 1981. "Tariff and Nontariff Barriers to Trade in the United States and Abroad," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 161-168, May.
    8. Peter S. Fisher, 1985. "Corporate Tax Incentives: The American Version of Industrial Policy," Journal of Economic Issues, Taylor & Francis Journals, vol. 19(1), pages 1-19, March.
    9. Glenn Jenkins, 1985. "The Impact Of Inflation On Corporate Taxes And The Cash Flows Of Business," Development Discussion Papers 1985-02, JDI Executive Programs.
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