Taxes, Volatility and Resources in Canadian Provinces

27 Pages Posted: 21 Jun 2016

See all articles by Brandon Schaufele

Brandon Schaufele

University of Western Ontario - Richard Ivey School of Business

Date Written: June 20, 2016

Abstract

Tax policy often breeds controversy, especially when rate changes are motivated by volatile resource sectors. This paper examines how provincial tax policies respond to changes in resource revenues. Specifically, it (i) estimates the "tax-resource" elasticity for Canadian provinces and (ii) measures the resource sector's contribution to the volatility of provincial GDP. Empirical results suggest that a $1,000 decrease in per capita resource revenue leads to a 150bps increase in a province's marginal personal income tax rate and a 3% increase in excise taxes on gasoline. A variance decomposition demonstrates that resource-induced volatility accounts, respectively, for 76.2%, 50.8% and 42.1% of the variance of Newfoundland and Labrador, Alberta and Saskatchewan's GDPs.

Keywords: tax-resource elasticity, provincial income taxes, resource-induced volatility

JEL Classification: H71, Q38, Q48

Suggested Citation

Schaufele, Brandon, Taxes, Volatility and Resources in Canadian Provinces (June 20, 2016). Available at SSRN: https://ssrn.com/abstract=2798279 or http://dx.doi.org/10.2139/ssrn.2798279

Brandon Schaufele (Contact Author)

University of Western Ontario - Richard Ivey School of Business ( email )

1151 Richmond Street North
London, Ontario N6A 3K7
Canada

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