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The Economic Incidence of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience

Author

Listed:
  • Richard M. Bird

    (University of Toronto)

  • Michael Smart

    (University of Toronto)

Abstract

A decade ago, several Canadian provinces replaced the retail sales taxes by value-added taxes. This paper estimates the effects of this tax substitution on consumer prices in the reforming provinces. Consistent with theory, we find that the resulting effective tax rate changes were shifted forward to consumers in most sectors of the economy. The overall effect on tax-inclusive consumer prices was small, albeit perhaps somewhat regressive.

Suggested Citation

  • Richard M. Bird & Michael Smart, 2008. "The Economic Incidence of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience," Working Papers Series 14, Rotman Institute for International Business, Joseph L. Rotman School of Management, University of Toronto, revised Jun 2008.
  • Handle: RePEc:ttp:iibwps:14
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    File URL: http://www-2.rotman.utoronto.ca/userfiles/iib/File/IIB14(1).pdf
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    References listed on IDEAS

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    Cited by:

    1. Richard M. Bird & Michael Smart, 2012. "Financing Social Expenditures in Developing Countries: Payroll or Value Added Taxes?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1206, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

    More about this item

    Keywords

    tax incidence; sales tax; value-added tax; Canada;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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