The Impact on Investment of Replacing a Retail Sales Tax with a Value-Added Tax: Evidence from Canadian Experience
Over a decade ago, several Canadian provinces replaced their retail sales taxes with value-added taxes. This paper estimates the effects of this tax substitution on business investment in these provinces. Consistent with standard investment theory, we find that the reform led to significant increases in machinery and equipment investment, at least in the short run. This evidence suggests that such a reform in a U.S. state with a similar retail sales tax may also be expected to result in increases, possibly substantial, in its capital stock.
Volume (Year): 62 (2009)
Issue (Month): 4 (December)
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