A Corporate Tax Comparison for Canada, the United States and Mexico

Among factors of production that determine the competitive advantage of a nation, capital is the most mobile. This mobility is influenced by the differences in after-tax rates of return across jurisdictions. With increased access to markets provided by the Canada-U.S. Free Trade Agreement (FTA) and North American Free Trade Agreement (NAFTA), the issue of differences in the corporate tax burden in Canada, the United States and Mexico has become more important. The purpose of this article is to determine, under the current federal, provincial, and state corporate tax systems, how various Canadian provinces rank against American and Mexican jurisdictions in the petrochemical, telecommunication equipment, steel and newsprint industries in terms of effective corporate tax rates.1 The article is divided into four sections. The first section sets out the methodology and provides a brief background of the corporate tax systems in Canada, the United States and Mexico. Simulation results under different taxation scenarios, along with the composition of the tax burden, are presented in the second section. The findings of similar studies on corporate taxes are briefly reviewed in the third section to complement the results of this article. The final section concludes.