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The Impact of Tax Cuts on Economic Growth: Evidence From the Canadian Provinces

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  • Ferede, Ergete
  • Dahlby, Bev

Abstract

We examine the impact of the Canadian provincial governments’ tax rates on economic growth using panel data covering the period 1977–2006. We find that a higher provincial statutory corporate income tax rate is associated with lower private investment and slower economic growth. Our empirical estimates suggest that a 1 percentage point cut in the corporate tax rate is related to a 0.1–0.2 percentage point increase in the annual growth rate. Our results also indicate that switching from a retail sales tax to a sales tax that is harmonized with the federal value-added sales tax boosts provincial investment and growth.

Suggested Citation

  • Ferede, Ergete & Dahlby, Bev, 2012. "The Impact of Tax Cuts on Economic Growth: Evidence From the Canadian Provinces," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(3), pages 563-594, September.
    • Handle: RePEc:ntj:journl:v:65:y:2012:i:3:p:563-94
    DOI: 10.17310/ntj.2012.3.03
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