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

Ferede, Ergete and 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.

Citation

Ferede, Ergete and Dahlby, Bev (2012), The Impact of Tax Cuts on Economic Growth: Evidence From the Canadian Provinces, National Tax Journal, 65:3, pp. 563-94

DOI: dx.doi.org/10.17310/ntj.2012.3.03