Download This PaperThe Impact on Investment of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience
27 Pages Posted: 29 Sep 2008
Date Written: June 2008
Abstract
Over a decade ago, several Canadian provinces replaced their retail sales taxes by value-added taxes. This paper estimates the effects of this tax substitution on business investment in the reforming provinces. Consistent with theory, we find that the reform led to significant increases in machinery and equipment investment, in the short run at least. This evidence suggests that a similar reform in a US state with similar retail sales taxes may also be expected to result in increases, possibly substantial, in capital stocks.
Keywords: state taxes, sales tax, value-added tax, investment
JEL Classification: H21, H25, H71
Suggested Citation: Suggested Citation
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