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The Impact of Tax Cuts on Economic Growth: Evidence From the Canadian Provinces

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  • Ferede, Ergete
  • Dahlby, Bev

Abstract

We examine the impact of the Canadian provincial governments’ tax rates on economic growth using panel data covering the period 1977–2006. We find that a higher provincial statutory corporate income tax rate is associated with lower private investment and slower economic growth. Our empirical estimates suggest that a 1 percentage point cut in the corporate tax rate is related to a 0.1–0.2 percentage point increase in the annual growth rate. Our results also indicate that switching from a retail sales tax to a sales tax that is harmonized with the federal value-added sales tax boosts provincial investment and growth.

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  • Ferede, Ergete & Dahlby, Bev, 2012. "The Impact of Tax Cuts on Economic Growth: Evidence From the Canadian Provinces," National Tax Journal, National Tax Association, vol. 65(3), pages 563-594, September.
  • Handle: RePEc:ntj:journl:v:65:y:2012:i:3:p:563-94
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    References listed on IDEAS

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    Cited by:

    1. Simplice Asongu & Mohamed Jellal, 2014. "Foreign aid, investment and fiscal policy behavior: theory and empirical evidence," Working Papers 14/030, African Governance and Development Institute..
    2. Bibek Adhikari, 2015. "When Does Introducing a Value-Added Tax Increase Economic Efficiency? Evidence from the Synthetic Control Method," Working Papers 1524, Tulane University, Department of Economics, revised Nov 2015.
    3. Denvil Duncan & Ed Gerrish, 2014. "Personal income tax mimicry: evidence from international panel data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 119-152, February.
    4. Simplice Asongu & Mohamed Jellal, 2016. "Foreign Aid Fiscal Policy: Theory and Evidence," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 58(2), pages 279-314, June.
    5. Nicholas Apergis & Alexandros Gabrielsen & Lee A. Smales, 2016. "(Unusual) weather and stock returns—I am not in the mood for mood: further evidence from international markets," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, pages 63-94.
    6. Chen, Ping-ho & Chu, Angus C. & Chu, Hsun & Lai, Ching-chong, 2017. "Short-run and long-run effects of capital taxation on innovation and economic growth," Journal of Macroeconomics, Elsevier, pages 207-221.
    7. repec:rjr:romjef:v::y:2017:i:4:p:152-165 is not listed on IDEAS
    8. V. U. Duc Cong & Kihwan Lee & V. U. Hoang Long, 2016. "An Empirical Analysis of the Prominent Roles of Taxations in the Synchronicity on Boost of Maritime Industry in Singapore," International Journal of Economics and Financial Issues, Econjournals, pages 118-131.
    9. repec:clh:resear:v:10:y:2017:i:26 is not listed on IDEAS
    10. repec:liu:liucej:v:14:y:2017:i:2:p:265-301 is not listed on IDEAS
    11. Nicholas Apergis & Alexandros Gabrielsen & Lee Smales, 2016. "(Unusual) weather and stock returns—I am not in the mood for mood: further evidence from international markets," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, pages 63-94.
    12. Denvil Duncan & Klara Sabirianova Peter, 2016. "Unequal inequalities: Do progressive taxes reduce income inequality?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(4), pages 762-783, August.

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