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Is Foreign-Owned Capital a Bad Thing to Tax?

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Author Info
William Scarth
Abstract

The aging population has raised at least two concerns about tax policy. First, taxes will need to be increased to cover higher public-pension and medical-care expenses when baby boomers have retired. Second, taxes can be cut in the meantime, as the government realizes the "fiscal dividend" that accompanies its debt reduction program (that has been motivated by the aging population development). This paper uses a simple endogenous growth analysis to examine these issues. It is assumed that sales tax increases are infeasible on political grounds. Two conclusions emerge: the income tax rate levied on domestic residents should be cut during the debt-reduction period, and the tax rate on foreigners whose capital is operating in Canada should be increased later on when the bulk of the baby boomers have retired.

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File URL: http://socserv2.socsci.mcmaster.ca/~sedap/p/sedap214.pdf
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Publisher Info
Paper provided by McMaster University in its series Social and Economic Dimensions of an Aging Population Research Papers with number 214.

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Length: 25 pages
Date of creation: Jun 2007
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Handle: RePEc:mcm:sedapp:214

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Related research
Keywords: fiscal policy endogenous growth open economy

Find related papers by JEL classification:
E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May. [Downloadable!] (restricted)
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  2. repec:cup:macdyn:v:6:y:2002:i:2:p:307-35 is not listed on IDEAS
  3. Milbourne, Ross, 1995. "Economic Growth and Convergence in Open Economies," Australian Economic Papers, Blackwell Publishing, vol. 34(65), pages 309-21, December.
  4. J. B. Burbridge & W. M. Scarth, 1995. "Eliminating Interest Taxation and Tariffs: The Underpinnings for Recent Canadian Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 437-49, May. [Downloadable!] (restricted)
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