New Report Undermines Popular Notion that Making Corporations Pay More Means We Pay Less

There is plenty of debate over how much government should tax corporations. One populist viewpoint is that a shift of the tax burden towards companies will mean average citizens pay less. However, a report published today by The School of Public Policy demonstrates that this scenario isn’t likely to happen.

Authors Bev Dahlby, Ergete Ferede and Ebenezer Adjei examine tax rate adjustments by the provincial governments from 1973 to 2010 to determine trends in timing and amplitude.

“Provinces tend to change their personal and corporate income tax rates in the same direction,” the authors write.

The authors argue that a government’s fiscal position dictates whether it will raise or lower taxes either on corporations or individuals. Therefore, if a government is in a fiscal pinch, it is more likely to raise taxes, and it will apply increases to both corporate and personal rates.

Another finding is that provinces tend to follow the lead of neighbouring provinces when it comes to cuts to both personal and corporate rates. People and businesses are mobile and therefore will seek more tax-friendly jurisdictions. Provinces realize this principle and appear to react to rate drops accordingly.

The full report and an accompanying communiqué can be found here.