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The Marginal Cost of Public Funds and the Laffer Curve: Evidence from the Canadian Provinces

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We estimate tax base elasticities for Canadian provinces to compute the Marginal Cost of Public Funds (MCF) for the three major taxes and assess the revenue implications of tax rate changes. We find that generally the corporate income tax has the highest and the sales tax has the lowest MCF. We also find that four provinces were on the negatively sloped sections of their total revenue Laffer curves with respect to their corporate income tax rate in 2013. The policy implication of this is that there would have been significant welfare gains from reductions in provincial corporate income tax rates.
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Keywords: LAFFER CURVE; MARGINAL COST OF PUBLIC FUNDS; TAX BASE ELASTICITY

Document Type: Research Article

Publication date: 01 June 2018

This article was made available online on 14 March 2018 as a Fast Track article with title: "The Marginal Cost of Public Funds and the Laffer Curve: Evidence from the Canadian Provinces".

More about this publication?
  • As one of the world's oldest professional journals in public finance, founded in 1884, FinanzArchiv (FA) publishes original work from all fields of public economics which are of interest to an international readership, e.g. taxation, public debt, public goods, public choice, federalism, market failure, social policy, and the welfare state. Special emphasis is on high-quality theoretical and empirical papers on current policy issues.

    FA is a peer-reviewed journal commited to a prompt turnaround of submissions.

    FA is listed in the Social Science Citation Index (SSCI), in Current Contents/Social and Behavioral Sciences, in Econ Lit, in the Journal of Economic Literature, in IDEAS and RePEc and in the International Bibliography of the Social Sciences.

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