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2006 OECD Economic Surveys: Canada 2006

image of OECD Economic Surveys: Canada 2006

This 2006 edition of OECD's periodic survey of Canada's economy finds strong economic performance but cautions that to maintain this performance, productivity must be increased and social policies must be put on a sustainable path.  After reviewing recent economic developments, the Survey examines the business environment including taxation, product market competition, and capital markets.  It then takes a look at the state of innovation, Canada's innovation strategy, and how to leverage innovation to improve economic performance.  A chapter on fiscal policy and federal-provincial arrangements finds equalisation transfers need to be revamped and that the federal government should step back from trying to steer in areas of provincial responsibility.  The final chapter takes a detailed look at social welfare programmes.

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Innovation and Economic Performance

Innovation plays a key role in economic progress and lifting living standards. The most critical factor in encouraging innovation is getting the framework conditions right so that businesses can flourish. This chapter concentrates on the more specific aspects of innovation in Canada to identify where policies could be improved. It first reviews Canada’s performance on innovation, which is relatively good on product innovation but weaker on processes. The country’s innovation strategy focuses on knowledge, skills, the innovation environment and community-based innovation. Public R&D needs to be governed by an integrated strategy, while generous tax credits for business R&D should be re-examined. More attention is being paid to commercialisation of R&D. A skilled and talented workforce helps to diffuse innovation through the economy, but while Canada has enough scientists to meet current demand, it lacks people with management, marketing and other business skills. Diffusion would also be aided by lifting general literacy and life skill levels. Well-designed co-financing arrangements would encourage participation in adult education and training. Lastly, the venture capital market would perform better if the tax advantage provided to Labour-Sponsored Venture Capital corporations were removed.

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