Canada's failed experiment with corporate income tax cuts
The short answer is no: far from improving economic outcomes, there is evidence to suggest that corporate income tax reductions depressed Canadian GDP growth.
The first round of significant corporate income tax reductions (from 36 per cent to 28 per cent) came in 1988, spearheaded by the Progressive Conservative government of Brian Mulroney. The second round was introduced in 2001 by the Liberal government of Jean Chrétien, which lowered the CIT rate to 22.1 per cent by 2004 (where the rate already stood in the manufacturing and resource sectors). The most recent round of corporate income tax reform began in 2008 under the current Harper government. In a five-step reduction program, statutory federal CIT rates fell from 22.1 per cent in 2007 to 15 per cent by 2012.
Over the past three decades the provinces have also reduced rates -- from an average of 14 per cent in the late 1990s to 11 per cent more recently. Both CIT rates in Figure 1 have been halved in the past three decades, with the bulk of the reduction coming since 2001. Did these reforms spur higher levels of investment and more rapid GDP growth?
Canada's failed experiment with corporate income tax cuts
The short answer is no: far from improving economic outcomes, there is evidence to suggest that corporate income tax reductions depressed Canadian GDP growth.
The first round of significant corporate income tax reductions (from 36 per cent to 28 per cent) came in 1988, spearheaded by the Progressive Conservative government of Brian Mulroney. The second round was introduced in 2001 by the Liberal government of Jean Chrétien, which lowered the CIT rate to 22.1 per cent by 2004 (where the rate already stood in the manufacturing and resource sectors). The most recent round of corporate income tax reform began in 2008 under the current Harper government. In a five-step reduction program, statutory federal CIT rates fell from 22.1 per cent in 2007 to 15 per cent by 2012.
Over the past three decades the provinces have also reduced rates -- from an average of 14 per cent in the late 1990s to 11 per cent more recently. Both CIT rates in Figure 1 have been halved in the past three decades, with the bulk of the reduction coming since 2001. Did these reforms spur higher levels of investment and more rapid GDP growth?
Canada's failed experiment with corporate income tax cuts
