OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

Tax Reform for Efficiency and Fairness in Canada You or your institution have access to this content

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Author(s):
Alexandra Bibbee1
Author Affiliations
  • 1: OECD, France

Publication Date
12 Aug 2008
Bibliographic information
No.:
631
Pages
48
DOI
10.1787/240634153012

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The Canadian government has set a high priority on reducing the economic burden of taxation. In a context of fiscal surpluses, it has been: markedly reducing corporate income and capital taxes; providing more personal tax relief especially at lower incomes and above all for saving; and cutting the federal value added tax (GST). While such measures, in particular income and capital tax cuts, reduce the economic damage caused by tax, Canada should go further along this route with significant revenue-neutral reforms to achieve a more efficient tax mix that also retains its redistributive features. Numerous tax preferences to favoured activities, firm types, investments and savings vehicles narrow the tax base and create loopholes, keeping statutory rates higher than otherwise and distorting resource allocation. They should therefore be removed. It would also help to shift the tax mix toward more user fees and indirect taxes – including VAT, environmental levies and property taxes – which do not distort inter-temporal economic choices as income taxes do. Lower corporate and personal income taxes could improve the incentives for capital formation, FDI, innovation, entrepreneurship, labour-force participation, work effort, and the pursuit of higher education. The result would be higher standards of living.
Keywords:
personal income tax, Canada, taxation
JEL Classification:
  • E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy
  • H2: Public Economics / Taxation, Subsidies, and Revenue
  • H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession