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Is Foreign-Owned Capital a Bad Thing to Tax?

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  • William Scarth

Abstract

The aging population has raised at least two concerns about tax policy. First, taxes will need to be increased to cover higher public-pension and medical-care expenses when baby boomers have retired. Second, taxes can be cut in the meantime, as the government realizes the "fiscal dividend" that accompanies its debt reduction program (that has been motivated by the aging population development). This paper uses a simple endogenous growth analysis to examine these issues. It is assumed that sales tax increases are infeasible on political grounds. Two conclusions emerge: the income tax rate levied on domestic residents should be cut during the debt-reduction period, and the tax rate on foreigners whose capital is operating in Canada should be increased later on when the bulk of the baby boomers have retired.

Suggested Citation

  • 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.
  • Handle: RePEc:mcm:sedapp:214
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    File URL: http://socserv.mcmaster.ca/sedap/p/sedap214.pdf
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    References listed on IDEAS

    as
    1. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May.
    2. Milbourne, Ross, 1995. "Economic Growth and Convergence in Open Economies," Australian Economic Papers, Wiley Blackwell, vol. 34(65), pages 309-321, December.
    3. repec:cup:macdyn:v:6:y:2002:i:2:p:307-35 is not listed on IDEAS
    4. Turnovsky, Stephen J., 2002. "Knife-Edge Conditions And The Macrodynamics Of Small Open Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 6(02), pages 307-335, April.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    fiscal policy; endogenous growth; open economy;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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