Taxing Consumption in Canada: Rates, Revenues, and Redistribution

28 Pages Posted: 15 Mar 2016

See all articles by Richard M. Bird

Richard M. Bird

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

Michael Smart

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

Date Written: March 14, 2016

Abstract

The introduction of the VAT in Canada, initially in the form of the federal GST in 1991, did not signify a major change in the tax mix even after most provincial sales taxes also became VATs. Canadians do not pay much if any more in taxes on their consumption than they did 25 years ago. Although the GST and its provincial companions are not perfect, the evidence is that they create fewer barriers to investment and growth than the taxes they replaced so that Canadians appear as a whole to be better off than they were before setting off down the road to VAT. Nonetheless, perhaps in part because the VAT in Canada unlike in other countries is generally quoted separately (like retail sales taxes in the US) and hence highly visible, it continues to be politically unpopular and considered undesirably regressive.

The major contribution of this paper is to examine in some detail and with some new evidence the incidence of Canada’s sales and excise taxes, a question that has received surprisingly little analysis. Because the share of total consumption taxes coming from sales rather than excise taxes has increased, these taxes are now less regressive than they were before the move to VAT, regardless of how incidence is measured. More importantly, there are solid arguments for using consumption than income as a basis for evaluating the progressivity of consumption taxes, and on this measure the GST and its companion taxes appear to be mildly progressive. However because the remaining excises are quite regressive even on this basis, on the whole the sales and excise system remains mildly regressive.

Keywords: sales tax, excise tax, value-added tax, incidence, progressivity

JEL Classification: H22, H25

Suggested Citation

Bird, Richard Miller and Smart, Michael, Taxing Consumption in Canada: Rates, Revenues, and Redistribution (March 14, 2016). Available at SSRN: https://ssrn.com/abstract=2747459 or http://dx.doi.org/10.2139/ssrn.2747459

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

Michael Smart

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
155
Abstract Views
801
rank
224,799
PlumX Metrics