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