A Spatial Analysis of Provincial Corporate Income Tax Responses: Evidence from Canada

30 Pages Posted: 20 Jul 2007

See all articles by Sotiris Karkalakos

Sotiris Karkalakos

University of Exeter Business School - Department of Economics

Christos Kotsogiannis

University of Exeter

Abstract

Using a model of interdependent tax choices, and accounting for equalization entitlements and general transfers, this paper estimates - making use of a spatial econometric framework - corporate income tax-setting functions for all Canadian provincial governments. The results show that there is a statistically significant positive fiscal interaction among a subset of provinces and between all provinces and the federal government. Provincial corporate income taxes are also found to be negatively related to equalization entitlements, general federal transfers, and the federal corporate income tax. A robustness check on the fiscal relationship between Ontario and Quebec verifies the existence of significant bi-directional fiscal interdependencies. The paper also introduces U.S state corporate income taxes as covariates and examines their interaction with Canadian provinces.

Suggested Citation

Karkalakos, Sotiris and Kotsogiannis, Christos, A Spatial Analysis of Provincial Corporate Income Tax Responses: Evidence from Canada. Canadian Journal of Economics, Vol. 40, No. 3, pp. 782-811, August 2007. Available at SSRN: https://ssrn.com/abstract=1001793 or http://dx.doi.org/10.1111/j.1365-2966.2007.00431.x

Sotiris Karkalakos (Contact Author)

University of Exeter Business School - Department of Economics ( email )

Streatham Court
Exeter, EX4 4RJ
United Kingdom

Christos Kotsogiannis

University of Exeter ( email )

Exeter EX4 4QX, Devon
United Kingdom

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