The Impact on Investment 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 15, Working Papers Series from Rotman Institute for International Business, Joseph L. Rotman School of Management, University of Toronto

Abstract: Over a decade ago, several Canadian provinces replaced their retail sales taxes by value-added taxes. This paper estimates the effects of this tax substitution on business investment in the reforming provinces. Consistent with theory, we find that the reform led to significant increases in machinery and equipment investment, in the short run at least. This evidence suggests that a similar reform in a US state with similar retail sales taxes may also be expected to result in increases, possibly substantial, in capital stocks.

Keywords: sales tax; value-added tax; investment (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-acc
Date: 2008-06, Revised 2008-06

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