The Impact on Investment of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience
نویسندگان
چکیده
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. Contact author – [email protected] 1 Thanks to Ziad Ghanem of Statistics Canada for access to and assistance with data and to participants at the John Deutsch Institute 2006 conference on “Harmonizing the RSTs and GST in Canada: Arguments and Issues” for advice and encouragement. An earlier version of much of this paper appeared in Smart (2007).
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