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Reforming Indirect Taxes in Canada: Some General Equilibrium Estimates

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  • Bob Hamilton
  • John Whalley

Abstract

The current indirect tax system in Canada distorts economic activity in a variety of ways and has been the subject of considerable discussion as part of overall tax reform. In this paper, a general equilibrium model is used to analyze various changes in indirect taxes in Canada, focusing on possible changes to the federal and provincial sales taxes. Results suggest that replacing either the federal or provincial sales taxes with a broadly-based sales tax yields a small, but significant, welfare gain. The distributional effects from these changes are slightly regressive, but appear to be quite small and easily offset by modest income tax credits targeted to low-income households. Results also suggest that a broad-based sales tax would be a significantly more efficient revenue source, should additional sales tax revenues be required.

Suggested Citation

  • Bob Hamilton & John Whalley, 1989. "Reforming Indirect Taxes in Canada: Some General Equilibrium Estimates," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 561-575, August.
    • Handle: RePEc:cje:issued:v:22:y:1989:i:3:p:561-75
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    Cited by:

    1. Xavier de Vanssay & Zane A. Spindler, 1994. "Is Tax Reform in the Public Interest? a Rent-Seeking Perspective," Public Finance Review, , vol. 22(1), pages 3-21, January.
    2. Lori J. Curtis & JoAnn Kingston-Riechers, 2010. "Implications of the Introduction of the Goods and Services Tax for Families in Canada," Canadian Public Policy, University of Toronto Press, vol. 36(4), pages 503-520, December.
    3. Benjamin Russo, 2005. "An Efficiency Analysis of Proposed State and Local Sales Tax Reforms," Southern Economic Journal, John Wiley & Sons, vol. 72(2), pages 443-462, October.
    4. Stefan Boeters & Christoph Bohringer & Thiess Buttner & Margit Kraus, 2010. "Economic effects of VAT reforms in Germany," Applied Economics, Taylor & Francis Journals, vol. 42(17), pages 2165-2182.
    5. John Piggott & John Whalley, 2001. "VAT Base Broadening, Self Supply, and the Informal Sector," American Economic Review, American Economic Association, vol. 91(4), pages 1084-1094, September.
    6. Richard M. Bird & Michael Smart, 2014. "VAT in a Federal System: Lessons from Canada," Public Budgeting & Finance, Wiley Blackwell, vol. 34(4), pages 38-60, December.
    7. Lemelin, André, 1993. "Les idées de Tadek Matuszewski à la lumière des développements récents en modélisation des systèmes économiques et particulièrement des modèles d’équilibre général appliqués," L'Actualité Economique, Société Canadienne de Science Economique, vol. 69(4), pages 365-374, décembre.

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