Historical Analysis of Business Investment and Taxes Going Back to 1961

Here is a link to the CCPA study we released yesterday, analyzing the determinants of business fixed non-residential capital investment spending in Canada on the basis of quarterly data from 1961 through 2010.  It formally tests for the direct significance of corporate tax variables and finds no such evidence (in either univariate or multivariate analysis). There is still an indirect impact of tax rates on investment experienced via incremental corporate cash flow, but that indirect effect is weak and getting weaker.  In recent years, after controlling for other determinants (especially economic growth, real interest rates, and oil prices), each dollar of incremental cash flow (via tax cuts or any other mechanism) generates just 10 cents of new investment.


We’d be much better off to simply spend the whole $6 billion on public investment, which would (via GDP effects) “crowd in” almost as much new private investment as would be stimulated with the $6 billion in tax cuts.

There is an appendix dealing with the measurement issues that Stephen Gordon and others used to attack that Globe and Mail study last week. Those arguments would not really apply to this study anyway, since I look at all fixed non-residential capital, not just machinery & equipment, and for that expenditure the pricae deflator has not been declining (although it has increased more slowly than for all GDP). Nevertheless, I argue in the Appendix that the fact that something is becoming relatively cheaper (as computeres are, but no other component of investment), hardly means that people are somehow spending MORE on it — especially as a share of their spendable funds (which cannot be deflated in that manner).  Dividing deflated investment by deflated GDP is bogus, since they are calculated with completely different deflators — that ratio is not economically meaningful.

Here’s a Toronto Star story which covered the study very well:


There’s a story in Le Devoir, too — suppplemented by a great one-two punch from our own Eric Pineault on similar issues:




  • I have a number of questions starting with footnote 1. Was that just individual tax filers, or did it include pension plans?

  • I”m not an economist but I have been reading many studies about this. I’ve long since came to the conclusion that corporate tax cuts have never benefited me.

    From what I have come to understand is that unless you work for one of these corporations and are receiving profit sharing or stock options, you are not receiving any benefit from these measures.

    The only other way you would have benefited is if you would have bought dividend paying stock in these companies.

    This leaves me with a question. Is the reduction of corporate tax offset by taxes on capital gains when it comes to overall tax revenues?

  • This is a very impressive study which clearly took a lot of time and effort. It enormously advances the credibility of progressive economics, and fundamentally undermines the “conventional wisdom.” Many thanks for this Jimbo.

  • Great study jimbo, sadly we cannot even get Harper to admit to the canadian public that indeed corporate tax cuts are real. In front of the nation in prime time, he stared into the camera and said there are no corporate tax cuts. Sure it as a play on words and such, but it is obvious he does not respect the general public and their rights to the truth, so it will be a long day in hell, where Harper sits and reads your
    paper with an ounce of understanding. Potentially the saner crowd will have a read and use it to ward off the leaching corps. For somebody who wants to be a leader, Harper sure seems to have developed some kind of mental health issue. Seriously, he is becoming delusional and a compulsive liar and i can see where he learned -surrounding himself with such advisors with guys like Carson, Flanagan and mintz, what a freaking crew of fraudulent, paranoid, supremacists. This crew is pretty scary. It proves to me, in it’s current for democracy does not work. How can this pack of hoodlums, with such idiotic ideas that corporate tax cuts in times of deficits are soothing the general public and position a party now built upon deceit, mistrust, a myriad of antidemocratic actions, into a majority position in the house of commons.

    It comes back to cash- truly it does. Buying heaps and heaps of inner communication with the electorate getting their trust with trinkets and bobbled, marginalizing those that lose and suppressing voices of effective protest. One would think in this age of social media, great research like this would permeate

  • What I find most surprising this week is that Obama’s speech yesterday has been generally celebrated by US progressives, yet what Obama proposed was exactly what is railed against here at the PEF.

    As noted at http://economix.blogs.nytimes.com/2011/04/08/the-logic-of-cutting-corporate-taxes/ Obama wants to cut the general corporate rate while eliminating the targeted, narrower tax breaks linked to new investment and job creation. What Obama has called for here in part of what has been described as one of his most “left wing” policy calls ever is the exact opposite of what is being called for at the PEF.

  • In the shadow of the United States, and more than a few years of training in the ‘virtues’ of cutting taxes, it is all but impossible to get across the idea that even restoring taxes on the wealthy/corporations, will address the very real needs of all the rest of us.

    Harper has made an argument some will believe that our needs will have to be forgone in favour of ‘staying the course’ until the time the deficit is slayed, and his vision of ‘family’ will be supported.

    Against that reality, the sophistication of your study, and its engagement with the ‘experts’ of the day, Mintz and Gordon, goes over most people’s heads–even as important as it most certainly is!

    Think of the slight of hand of the Harper television commercial which quite deftly manages to conflate Iggy’s proposal to restore corporate taxes to the relatively modest levels where previous Liberal governments left it with raising taxes on the ‘middle-class.’

    This is the effectiveness of generations’ long agitprop: the inability to distinguish between taxes on those individuals and entities that make so much–the 1%–and the rest of us.

    Particularly those of us who make below the median income.

    I say “Soak the rich!”

  • Hey Brian, you gotta be joking- Obama’s corp tax cuts -“generally celebrated by US progressives”

    What colour is the sky in your world? Come on Mr. Dell you don’t actually believe what you just wrote do you?

    Obama has shown stripes- and has made some very right of center decisions of late- progressives in the US do not view him as progressive anymore. Why not email one Dennis John Kucinich the U.S. Representative for Ohio’s 10th congressional district – one who I would call the real leader of the elected progressives in the US.

    But jab away if you must at the PEF, we can take it, with nonsensical Harperonics in power- we can take just about anything.

    I would also say that is a pretty lame post considering the article you attached this comment to, as you obviously did not read it.

    Poor Jimbo- that was a mighty effort with the pen and slide ruler and such a bad comment. If you need a hand with the data, give me a shout next time. I mean it.

  • Cutting the rate while broadening the base is both 1) a non-distortionary policy and 2) an excellent lead-in for the next administration to hike the rate on the new broader base. It’s happened before and it will happen again.

    Oh, and I’m hearing crickets with respect to my opening question.

  • Corporate Tax: Yay or Nay?
    Posted: http://www.jamesconvey.com 02 May 2011 08:21 AM PDT
    …… I believe most avid supporters of a reduction in corporate taxes, while well meaning perhaps, might find it interesting that regardless of the various tax regimens prevalent in other jurisdictions, the facts are, that current studies recently completed, are finally showing the “lie” to this claim, about corporate tax rates being the essential matter as to a nations economic health! Also that as a singular focus, they are equally no indication of “any” nations underlying economic health, given our latest disasters, and the continuing plight of nations such as Ireland, Portugal, Greece, Iceland etc ? I include an item below, about just such a Canadian study released this past week. Canada’s economy is arguably the healthiest on the planet at the moment, at least as regards the old G7 nations. The author of this study is a Canadian, and of a new breed of economists. He is well respected for his work and his opinions. Please research him on line (Jim Stanford PHD).

    Additionally one needs to realize that it is impossible today for any shareholder in these massive corporate entities, to effectively influence the decisions of a small and usually mediocre, cadre of individuals, in the board rooms of any nation! They make decisions in a self serving “socialist” manner, without accountability or awareness for their social responsibility to the community as a whole! They are by nature and mandate, only interested in “bottom line (profitability) management”. They have become, unwittingly for some perhaps, a larger threat to democracy than bad government!

    The defining debate must therefore eventually be, what constitutes a “corporation”? Certainly small startups and entrepreneurial activity need to be continually stimulated, to ensure a healthy economy. That does not mean however, that massive multi national and “behemoth” industrial corporations deserve this self same definition and set of advantages, which because of their very size, disadvantages the competitive commercial dynamic, that usually stimulates healthy capitalist growth patterns.

    In essence the various and singular limited definitions of “corporate” as they are now, create exactly what must be avoided, to maintain a level and equitable tax regime! The very obvious arrival upon the capitalist scene over the last 30 years, of these “too big to fail” gargantuan parasites, are evidence of this need, for a more composite approach to corporate tax stimulation dynamics. They now overburden, (some by deliberate intention and others by acts of omission and mismanagement), and adversely affect the basic rights of the community control of the democratic system. I am sure it is obvious that capitalism as a tool of society, designed to nurture community, cannot exist in competition with this socialist ethos! It must be ended and these out of control trends toward “growth at all costs”, be reined in and redefined to enhance capitalism and democracy.

    A new economic format needs to be defined that eradicates this excessive “accumulate at all costs” entity from our capitalist system. In short, taxation should always stimulate corporately, from the bottom up and not the reverse, as we appear to have it now, across the entire spectrum of all democratic Global tax regimes! Capitalism can be a nurturing system, when it is serving the community’s needs as a whole. Otherwise it becomes solely the bastion of the rich and the powerful and sets the stage for an elitism that could drag any population down into serf like systems of existence. Needless to say this could happen Globally as well?

    Given our burgeoning Global economy, and it’s obvious future economic and competitive realities, we cannot afford any longer to disregard the power that is being granted, without warrant, to these out of control, too big to fail idiot children, of the “greed is good, unfettered and unregulated and less chaste, 20th century system of commerce. It is time for a 21st century economic model, that puts the health and welfare of the community and the individual as it’s paramount goal! I trust that the Jim Stanford and other young economists of today, can achieve the influences required, to redirect the ideological argument toward this ambition. It is imperative!

  • I would add that my motivation to publish the above commentary, as posted to my website @www.jamesconvey.com, came in response to an intensely idiotic article written by one Mr Harvey Enchin. In Fridays Vancouver sun. (See Decision Canada Page B2) It was full of assumptive, misleading and inaccurate rhetoric, attacking both “Layton NDPer’s and the greens” and I was so incensed that I wrote to him with full contradictory comment. He of course, in his extremist self righteous pietistic and prevaricating manner, attacked Jim Stanford’s work as, quote: “socialistic anti capitalist claptrap”!
    This is what we are up against in the new media reality! The Americanization of right wing media is well under way, and led by none other than this cretinous fool. 30 odd years at his punditry and bully pulpit and yet still a fool! He believes that US media tactics will be welcomed by Canadians? Not this Canadian, and now going on 64 years old, I am now inspired to fight this evil dynamic and their intention to foist it’s divisive evil upon my Canada! “Over my cold dead body” (A little dramatic perhaps……..:-) But written with calm and cold calculating intent!

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