Corporate income tax and economic growth: further evidence from Canadian provinces

Dahlby, Bev; Ferede, Ergete

Corporate income tax and economic growth: further evidence from Canadian provinces

Author

Dahlby, Bev

Ferede, Ergete

Date

2021

Keywords

corporate income tax, economic growth, investment, fiscal federalism

Abstract (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.

Publication Information

Dahlby, B. and Ferede, E. (2021). Corporate Income Tax and Economic Growth: Further Evidence from Canadian Provinces, FinanzArchiv/Public Finance Analysis, 77(24), 59-82. DOI: 10.1628/fa-2021-0002