The Costliest Tax of all: Raising Revenue through Corporate Tax Hikes can be Counter-Productive for the Provinces ...

• Main Authors: Ferede, Ergete, Dahlby, Bev
• Format: Article in Journal/Newspaper
• Language: English
• Published: The School of Public Policy Publications 2016
• Subjects: Newfoundland
• Online Access: https://dx.doi.org/10.11575/sppp.v9i0.42577.g30459; https://journalhosting.ucalgary.ca/index.php/sppp/article/view/42577/30459

Raising taxes can come at a serious cost. Not just to the taxpayer, of course, but to the economy. Every tax hike naturally leads people or companies to reallocate resources in ways that are less productive, resulting in a loss of income-generating opportunities. At a certain point, raising taxes becomes manifestly counterproductive, with the revenue lost due to the negative economic effects outweighing any tax gains. In cases like that, a government would actually raise more money by lowering taxes, broadening the tax base, than it does by increasing taxes. In fact, an analysis of the tax-base elasticities of the provinces, using data from 1972 to 2010, reveals that this very phenomenon is what occurred in Saskatchewan, which raised corporate taxes to a point where it began to backfire, sabotaging the government’s goal of raising more revenue. It also occurred in New Brunswick, Newfoundland and Labrador, P.E.I., and Nova Scotia. In all these provinces, tax increases on corporate earnings actually ended up ... : The School of Public Policy Publications, Vol 9 (2016) ...