The Impact on Investment of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience

27 Pages Posted: 29 Sep 2008

See all articles by Michael Smart

Michael Smart

University of Toronto - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Richard M. Bird

University of Toronto - Joseph L. Rotman School of Management; Georgia State University - Andrew Young School of Public Policy

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

Smart, Michael and Bird, Richard Miller, The Impact on Investment of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience (June 2008). Available at SSRN: https://ssrn.com/abstract=1273773 or http://dx.doi.org/10.2139/ssrn.1273773

Michael Smart

University of Toronto - Department of Economics ( email )

150 St. George Street
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Canada
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

Richard Miller Bird (Contact Author)

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
905-274-8841 (Phone)

Georgia State University - Andrew Young School of Public Policy

International Studies Program
Atlanta, GA 30303-3083
United States

HOME PAGE: http://www.aysps.gsu.edu

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