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An empirical analysis of intergovernmental tax interaction: the case of business income taxes in Canada

An empirical analysis of intergovernmental tax interaction: the case of business income taxes in... Both federal and provincial governments in Canada levy corporate taxes on businesses in their jurisdictions, which potentially gives rise to horizontal and vertical tax externalities within the federation. Using a simple model of interdependent tax choices, we estimate tax‐setting functions for the federal government, Ontario, Quebec, and an aggregate of the remaining eight provinces. We find evidence of significant vertical and horizontal tax interactions. Provincial tax rates respond negatively to the federal tax rate, while at least some provinces increase their tax rates in response to increases in the tax rates of other provinces. JEL Classification: H25, H7 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Canadian Journal of Economics/Revue Canadienne D'économique Wiley

An empirical analysis of intergovernmental tax interaction: the case of business income taxes in Canada

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References (31)

Publisher
Wiley
Copyright
Copyright © 2001 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0008-4085
eISSN
1540-5982
DOI
10.1111/0008-4085.00085
Publisher site
See Article on Publisher Site

Abstract

Both federal and provincial governments in Canada levy corporate taxes on businesses in their jurisdictions, which potentially gives rise to horizontal and vertical tax externalities within the federation. Using a simple model of interdependent tax choices, we estimate tax‐setting functions for the federal government, Ontario, Quebec, and an aggregate of the remaining eight provinces. We find evidence of significant vertical and horizontal tax interactions. Provincial tax rates respond negatively to the federal tax rate, while at least some provinces increase their tax rates in response to increases in the tax rates of other provinces. JEL Classification: H25, H7

Journal

Canadian Journal of Economics/Revue Canadienne D'économique – Wiley

Published: May 1, 2001

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