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Corporate Income Tax and Economic Growth: Further Evidence from Canadian Provinces

Author

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  • Bev Dahlby
  • Ergete Ferede

Abstract

This paper investigates the effect of corporate income tax (CIT) rate on economic growth, using panel data from Canadian provinces over the period 1981-2016. Our empirical approach enables us to examine the long-run relationship between provincial tax rates and economic growth by allowing short-run dynamics to vary across provinces. We find that a reduction in the CIT rate has a statistically significant positive effect on the economic growth rate. Based on our main specification, a one-percentage-point reduction in the provincial CIT rate increases the growth rate by 0.12 percentage point four years after the initial CIT rate cut.

Suggested Citation

  • Bev Dahlby & Ergete Ferede, 2021. "Corporate Income Tax and Economic Growth: Further Evidence from Canadian Provinces," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 77(1), pages 59-82.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2021-0002
    DOI: 10.1628/fa-2021-0002
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    Cited by:

    1. Omodero Cordelia Onyinyechi, 2022. "Fiscal Federalism, Tax Independence and Social Enhancement," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 32(4), pages 1-15, December.
    2. Newbert, Scott L. & Kher, Romi & Yang, Shu, 2022. "Now that's interesting and important! Moving beyond averages to increase the inferential value of empirical findings in entrepreneurship research," Journal of Business Venturing, Elsevier, vol. 37(2).

    More about this item

    Keywords

    corporate income tax; economic growth; investment; fiscal federalism;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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