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  • Rental Wage in Canada July 18, 2019
    Our new report maps rental affordability in neighbourhoods across Canada by calculating the “rental wage,” which is the hourly wage needed to afford an average apartment without spending more than 30% of one’s earnings.  Across all of Canada, the average wage needed to afford a two-bedroom apartment is $22.40/h, or $20.20/h for an average one […]
    Canadian Centre for Policy Alternatives
  • Towards Justice: Tackling Indigenous Child Poverty in Canada July 9, 2019
    CCPA senior economist David Macdonald co-authored a new report, Towards Justice: Tackling Indigenous Child Poverty in Canada­—released by Upstream Institute in partnership with the Assembly of First Nations (AFN) and the Canadian Centre for Policy Alternatives (CCPA)—tracks child poverty rates using Census 2006, the 2011 National Household Survey and Census 2016. The report is available for […]
    Canadian Centre for Policy Alternatives
  • Fossil-Power Top 50 launched July 3, 2019
    What do Suncor, Encana, the Royal Bank of Canada, the Fraser Institute and 46 other companies and organizations have in common? They are among the entities that make up the most influential fossil fuel industry players in Canada. Today, the Corporate Mapping Project (CMP) is drawing attention to these powerful corporations and organizations with the […]
    Canadian Centre for Policy Alternatives
  • Tickets available for Errol Black Chair Fundraising Brunch 2019 June 26, 2019
    You are invited to CCPA-MB’s annual fundraising brunch in support of the Errol Black Chair in Labour Issues.  Please join us to honour: Honoured Guest: John Loxley is Professor of Economics at the University of Manitoba and a Fellow of the Royal Society of Canada. Guest Speaker:  Jim Stanford is Economist and Director of the Centre […]
    Canadian Centre for Policy Alternatives
  • The fight against ISDS in Romania June 24, 2019
    CCPA is proud to co-sponsor this terrific video from our colleagues at Corporate Europe Observatory. It chronicles grassroots resistance to efforts by Canadian mining company Gabriel Resources to build Europe’s largest open-pit gold mine in a culturally rich and environmentally sensitive region of Romania. After this unimaginably destructive project was refused by the Romanian public and courts, the […]
    Canadian Centre for Policy Alternatives
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Corporate Taxes and Investment

It looks like Jim has hit the pig again. The “Research Report” in the Tax Expenditures and Evaluations released by Finance Canada today cites one of his excellent pieces on corporate tax cuts.

Finance Canada overtly takes on the critique of corporate tax cuts put forward by this blog, the labour movement, and the NDP. Its news release promises “clear evidence that investment was strongly and positively influenced by the 2001–2004 tax reductions.” The Research Report delivers rather opaque econometrics that cannot be scrutinized until the corresponding Working Paper is released.

However, the methodologies outlined in the Report are clearly open to question. The first method compares investment before and after the corporate tax cuts. It does so in constant 1997 dollars, which seems to involve deflating GDP back several years based on one price index and deflating investment back several years based on a different price index. Much of the apparent increase in investment during the tax-cut years may simply reflect the vagaries of the capital-goods price index.

The second method, which generates results twice as optimistic, compares non-manufacturing industries that benefited from the 28%-to-21% tax cut with manufacturing, which already had a 21% tax rate. Not surprisingly, investment growth was much stronger in non-manufacturing industries. The problem with using Canadian manufacturing as the “control group” is that it has been hammered by various other factors: a rising dollar, expanding imports from Asia, increasing energy costs, etc.

Finance Canada’s equation makes some effort to account for variables other than tax changes. However, if the regression attributes even a fraction of the difference between manufacturing and other industries to corporate tax cuts, then it is bound to show that these cuts have had a hugely positive effect on investment. Comparing manufacturing to the rest of the economy is not a good way of measuring the effects of corporate tax cuts.

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