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On the Incidence of the Manufacturers' Sales Tax and the Goods and Services Tax

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  • G. C. Ruggeri
  • K. Bluck

Abstract

In April 1989, the federal Minister of Finance announced plans to implement the Goods and Services Tax (GST), an invoice- based value-added tax, as a replacement for the present Manufacturers' Sales Tax (MST). One of the stated reasons for this change was the concern about the regressivity of the MST. The purpose of this paper is to investigate the distributional effects of replacing the MST with the GST. Baum's Relative Share Adjustment (RSA) is used to estimate the incidence of the MST, a broad-based VAT and the GST, assuming 1986 revenue and consumption patterns. The results show that the VAT and, to a lesser extent, the GST are more regressive than the MST. This distributional shortcoming of the GST can be corrected through a low income credit financed either by a high income surtax or a higher GST rate.

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  • G. C. Ruggeri & K. Bluck, 1990. "On the Incidence of the Manufacturers' Sales Tax and the Goods and Services Tax," Canadian Public Policy, University of Toronto Press, vol. 16(4), pages 359-373, December.
    • Handle: RePEc:cpp:issued:v:16:y:1990:i:4:p:359-373
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    References listed on IDEAS

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    1. Suits, Daniel B, 1977. "Measurement of Tax Progressivity," American Economic Review, American Economic Association, vol. 67(4), pages 747-752, September.
    2. Chun-Yan Kuo & Thomas Mcgirr & Satya Poddar, 1988. "Measuring the Non-Neutralities of Sales and Excise Taxes in Canada," Development Discussion Papers 1988-08, JDI Executive Programs.
    3. Browning, Edgar K, 1978. "The Burden of Taxation," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 649-671, August.
    4. John Whalley, 1984. "Regression or Progression: The Taxing Question of Incidence Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 654-682, November.
    5. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    6. Davies, James B & St-Hilaire, France & Whalley, John, 1984. "Some Calculations of Lifetime Tax Incidence," American Economic Review, American Economic Association, vol. 74(4), pages 633-649, September.
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    Cited by:

    1. Michael Smart & Richard M. Bird, 2009. "The Economic Incidence of Replacing a Retail Sales Tax with a Value-Added Tax: Evidence from Canadian Experience," Canadian Public Policy, University of Toronto Press, vol. 35(1), pages 85-97, March.
    2. Santra, Sattwik & Hati, Koushik Kumar, 2014. "India’s Move from Sales Tax to VAT: A Hit or Miss?," MPRA Paper 54542, University Library of Munich, Germany.
    3. Michael Smart, 2007. "Lessons in Harmony: What Experience in the Atlantic Provinces Shows About the Benefits of a Harmonized Sales Tax," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 253, July.

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