Closing the 49th Parallel: An Unexplored Episode in Canadian Economic and Political History

We draw attention to, and begin to consider the implications of the severe restrictions on emigration by Canadians to the United States introduced under the U.S. Immigration Act of 1965. These restrictions came into effect in 1968 and lasted until mobility began to increase under the free trade agreements in the early 1990's. This is an unusual episode in Canadian history, one whose implications for public policy have received little attention. The near closing of the border during this period likely led to a decrease in the elasticity of labour supply in Canada. We derive the implications of such a change in a competitive political model where the political costs and benefits of levying taxes on different activities are distinguished. Increased reliance on, and changes in the structure of, labour income taxes, and an increase in the size of the public sector are predicted. We show that these predictions are consistent with what occurred over the two decades after the near closing of the U.S. border.