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The GST Cut and Fiscal Imbalance

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Author Info
Michael Smart () (International Tax Program, Rotman School of Management, University of Toronto)

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Abstract

The federal government is reducing its GST rate from 7% to 5%. We examine a broader reform in which this reduction in federal tax rates and revenues is accompanied by a similar reduction in federal transfers to the provinces. At the same time, the provinces may if they wish increase their own sales tax rates to make up the difference, while some provinces, including Ontario, reform their retail sales taxes to emulate the federal GST more closely. We analyze the likely impacts of such reforms on provincial revenues, tax incidence, and business investment. The result of combining these measures would be (1) a better ‘balanced’ federation, with less room for ‘blame-shifting’ between levels of government and consequently greater accountability at all levels, and (2) owing to the removal of the present surprisingly heavy tax on investment imposed by the provincial retail sales taxes an expansion in investment and, over time, in productivity, employment, and perhaps economic growth.

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File URL: http://www.rotman.utoronto.ca/iib/ITP0604.pdf
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Publisher Info
Paper provided by International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto in its series International Tax Program Papers with number 0604.

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Length: 30 Pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:ttp:itpwps:0604

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Related research
Keywords: GST; fiscal imbalance; provincial sales taxes; accountability; competitiveness;

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Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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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. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, vol. 88(6), pages 1149-1168, June. [Downloadable!] (restricted)
    Other versions:
  2. Winer, Stanley L, 1983. "Some Evidence on the Effect of the Separation of Spending and Taxing Decisions," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 126-40, February. [Downloadable!] (restricted)
  3. Richard M. Bird, 2005. "Value-Added Taxes in Developing and Transitional Countries: Lessons and Questions," International Tax Program Papers 0505, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto. [Downloadable!]
    Other versions:
  4. Richard M. bird, 2003. "Taxation in Latin America: Reflections on Sustainability and the Balance between Equity and Efficiency," International Tax Program Papers 0306, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto. [Downloadable!]
  5. Andrew Sharpe, 2003. "Linkages Between Economic Growth and Inequality: Introduction and Overview," Canadian Public Policy, University of Toronto Press, vol. 29(s1), pages 1-14, January. [Downloadable!] (restricted)
  6. Maximilian Baylor & Louis Beauséjour, . "Taxation and Economic Efficiency: Results from a Canadian CGE Model," Working Papers-Department of Finance Canada 2004-10, Department of Finance Canada. [Downloadable!]
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Cited by:
(explanations, 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. Andrew Sharpe, 2007. "Three Policies to Improve Productivity Growth in Canada," CSLS Research Reports 2007-05, Centre for the Study of Living Standards. [Downloadable!]
  2. Richard.M. Bird, 2009. "Subnational Taxes in Developing Countries: The Way Forward," Working Papers id:2072, esocialsciences.com. [Downloadable!]
    Other versions:
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This page was last updated on 2009-11-29.

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