Eliminating Interest Taxation and Tariffs: The Underpinnings for Recent Canadian Policy

J. B. Burbridge and W. M. Scarth
Authors registered in the RePEc Author Service: John Burbidge

Canadian Journal of Economics, 1995, vol. 28, issue 2, 437-49

Abstract: O. J. Blanchard's (1985) formulation of the overlapping-generations model and the social welfare function advocated by G. Calvo and M. Obstfeld (1988) are used to analyze interest taxation and tariffs in a small open economy. When the revenue lost from the elimination of these taxes is replaced by raising the tax on labor, as in recent Canadian experience, a 'low' social discount rate is required for the model to support lower interest-income taxes, while a 'high' discount rate is needed to support the elimination of tariffs. The authors illustrate the empirical importance of this simultaneous need for both a 'high' and a 'low' discount rate.

Date: 1995
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