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Cover of: Corporate Income Tax and Economic Growth: Further Evidence from Canadian Provinces
Bev Dahlby, Ergete Ferede

Corporate Income Tax and Economic Growth: Further Evidence from Canadian Provinces

Section: Articles
Volume 77 (2021) / Issue 1, pp. 59-82 (24)
Published 01.03.2021
DOI 10.1628/fa-2021-0002
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  • 10.1628/fa-2021-0002
Summary
This paper investigates the effect of corporate income tax (CIT) rate on economic growth, using panel data from Canadian provinces over the period 1981-2016. Our empirical approach enables us to examine the long-run relationship between provincial tax rates and economic growth by allowing short-run dynamics to vary across provinces. We find that a reduction in the CIT rate has a statistically significant positive effect on the economic growth rate. Based on our main specification, a one-percentage-point reduction in the provincial CIT rate increases the growth rate by 0.12 percentage point four years after the initial CIT rate cut.