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Eliminating Interest Taxation and Tariffs: The Underpinnings for Recent Canadian Policy

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  • J. B. Burbridge
  • W. M. Scarth

Abstract

O. J. Blanchard's (1985) formulation of the overlapping-generations model and the social welfare function advocated by G. Calvo and M. Obstfeld (1988) are used to analyze interest taxation and tariffs in a small open economy. When the revenue lost from the elimination of these taxes is replaced by raising the tax on labor, as in recent Canadian experience, a 'low' social discount rate is required for the model to support lower interest-income taxes, while a 'high' discount rate is needed to support the elimination of tariffs. The authors illustrate the empirical importance of this simultaneous need for both a 'high' and a 'low' discount rate.

Suggested Citation

  • J. B. Burbridge & W. M. Scarth, 1995. "Eliminating Interest Taxation and Tariffs: The Underpinnings for Recent Canadian Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 437-449, May.
  • Handle: RePEc:cje:issued:v:28:y:1995:i:2:p:437-49
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    Cited by:

    1. William Scarth, 2007. "Is Foreign-Owned Capital a Bad Thing to Tax?," Quantitative Studies in Economics and Population Research Reports 422, McMaster University.
    2. William Scarth, 2007. "Is Foreign-Owned Capital a Bad Thing to Tax?," Social and Economic Dimensions of an Aging Population Research Papers 214, McMaster University.

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