The Economic Incidence of Replacing a Retail Sales Tax by a Value-Added Tax: Evidence from Canadian Experience

Richard M. Bird () and Michael Smart
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Michael Smart: University of Toronto

No 14, Working Papers Series from Rotman Institute for International Business, Joseph L. Rotman School of Management, University of Toronto

Abstract: A decade ago, several Canadian provinces replaced the retail sales taxes by value-added taxes. This paper estimates the effects of this tax substitution on consumer prices in the reforming provinces. Consistent with theory, we find that the resulting effective tax rate changes were shifted forward to consumers in most sectors of the economy. The overall effect on tax-inclusive consumer prices was small, albeit perhaps somewhat regressive.

Keywords: tax incidence; sales tax; value-added tax; Canada (search for similar items in EconPapers)
JEL-codes: H22 H25 H71 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2008-06, Revised 2008-06
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