Is Foreign-Owned Capital a Bad Thing to Tax?

William Scarth

Quantitative Studies in Economics and Population Research Reports from McMaster University

Abstract: The aging population has raised at least two concerns about tax policy. First, taxes will need to be increased to cover higher public-pension and medical-care expenses when baby boomers have retired. Second, taxes can be cut in the meantime, as the government realizes the "fiscal dividend" that accompanies its debt reduction program (that has been motivated by the aging population development). This paper uses a simple endogenous growth analysis to examine these issues. It is assumed that sales tax increases are infeasible on political grounds. Two conclusions emerge: the income tax rate levied on domestic residents should be cut during the debt-reduction period, and the tax rate on foreigners whose capital is operating in Canada should be increased later on when the bulk of the baby boomers have retired.

Keywords: fiscal policy; endogenous growth; open economy (search for similar items in EconPapers)
JEL-codes: E10 E60 F43 H30 O40 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2007-06
New Economics Papers: this item is included in nep-mac and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:qseprr:422

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