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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)

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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.rotman.utoronto.ca/userfiles/iib/File/IIB15(1).pdf
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Publisher 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;

Find related papers by JEL classification:
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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This page was last updated on 2009-11-27.

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