The GST Cut and Fiscal Imbalance
AbstractThe 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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Bibliographic InfoPaper 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.
Length: 30 Pages
Date of creation: Jun 2006
Date of revision:
GST; fiscal imbalance; provincial sales taxes; accountability; competitiveness;
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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