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The Impact on Investment of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience

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Author Info

  • Richard M. Bird

    (University of Toronto)

  • Michael Smart

    (University of Toronto)

Abstract

Over a decade ago, several Canadian provinces replaced their retail sales taxes by value-added taxes. This paper estimates the effects of this tax substitution on business investment in the reforming provinces. Consistent with theory, we find that the reform led to significant increases in machinery and equipment investment, in the short run at least. This evidence suggests that a similar reform in a US state with similar retail sales taxes may also be expected to result in increases, possibly substantial, in capital stocks.

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File URL: http://www-2.rotman.utoronto.ca/userfiles/iib/File/IIB15(1).pdf
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Bibliographic Info

Paper provided by Rotman Institute for International Business, Joseph L. Rotman School of Management, University of Toronto in its series Working Papers Series with number 15.

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Length: 27 Pages
Date of creation: Jun 2008
Date of revision: Jun 2008
Handle: RePEc:ttp:iibwps:15

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Related research

Keywords: sales tax; value-added tax; investment;

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Cited by:
  1. Mark Parsons, 2011. "Rewarding Innovation: Improving Federal Tax Support for Business R&D in Canada," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 334, September.
  2. Bev Dahlby & Ergete Ferede, 2011. "What Does it Cost Society to Raise a Dollar of Tax Revenue? The Marginal Cost of Public Funds," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 324, March.
  3. 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.
  4. Rajesh Chadha, 2010. "Moving to Goods and Services Tax in India: Impact on India’s Growth and International Trade," Working Papers id:2764, eSocialSciences.

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