The Impact of Sales Tax Reform on Ontario Consumers: A First Look at the Evidence

23 Pages Posted: 6 Sep 2011

See all articles by Michael Smart

Michael Smart

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

Date Written: March 15, 2011

Abstract

Ontario’s new Harmonized Sales Tax applies to a broader base of consumer purchases than before, but it also removes some of the “hidden” taxes on business inputs. This paper offers a first look at how the change has affected consumer prices and the welfare of Ontario families. While consumer prices initially rose 0.9% due to the reform, the price impact has since fallen, reflecting the way that input tax credits are being passed on to consumers, or the new taxes are otherwise being absorbed by sellers. With the compensating income tax changes also enacted by the Ontario government, the net impact of the reform for most families by the end of 2010 was a gain or very small loss in after-tax real incomes. Since input tax credits are likely passed on as lower prices or higher wages only gradually over time, the effect of the policy on after-tax real incomes will likely continue to improve over time.

Keywords: HST, Tax, Ontario, Consumer, GST

JEL Classification: H20, H21, H24, H25

Suggested Citation

Smart, Michael, The Impact of Sales Tax Reform on Ontario Consumers: A First Look at the Evidence (March 15, 2011). SPP Research Paper No. 11-3, Available at SSRN: https://ssrn.com/abstract=1923334 or http://dx.doi.org/10.2139/ssrn.1923334

Michael Smart (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Institute for Policy Analysis
Toronto, Ontario M5S 3G7
Canada
416-978-5119 (Phone)
416-978-6713 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
131
Abstract Views
2,457
rank
257,532
PlumX Metrics