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BC’s Take on Tax Interaction – Hit em again

with 20 comments

Tax interaction is where taxes add distortions to the economy (economist raises hands to checks, gasps “inefficiency!” and moans “ooooohhhhh”), and either reinforce each other as bads, or can be used to offset existing bads. The double dividend theory instructs that the hit from abatement costs and payments on emissions (tax on remaining emissions or permits auctioned) can be offset by reducing existing distortionary taxes on capital and labour. (see paper here). A strong double dividend means the economy is better off since the inefficiencies introduced by the carbon costs are smaller than the existing tax distortions that have been removed. A weak dividend means the carbon cost inefficiencies are larger than the existing distorions that were offset with carbon revenue. Most of the literature on this falls into the weak double dividend camp.

So what to make of BC (here):

I have just carefully read my Terasen Gas bill and became aware that I am paying GST on the carbon tax that was implemented recently. I contacted the provincial government tax department and was told “that is just the way it has been set up … the only exemption from GST is PST.” So when the harmonized sales tax (HST) is implemented, will we pay both on the carbon tax if part of the HST is PST? Just one of those questions one asks when considering the next government.

BC has been under fiscal pressure given the economic downturn, no question, which has been exacerbated by offsetting existing taxes with carbon tax revenue. But, has the incentive function of the tax given way to a fiscal function? Not sure, but certainly a tax on a tax on a tax can’t be good.

Written by Dave Sawyer

December 3rd, 2009 at 9:26 am

Posted in Uncategorized

20 Responses to 'BC’s Take on Tax Interaction – Hit em again'

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  1. .

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    Alfredo

    29 Jul 14 at 2:57 pm

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    jeff

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    matthew

    17 Nov 14 at 5:08 pm

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    Vernon

    19 Nov 14 at 12:08 am

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    Alex

    19 Nov 14 at 10:08 pm

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    larry

    21 Nov 14 at 8:34 am

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    22 Nov 14 at 2:10 pm

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    26 Nov 14 at 5:40 pm

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    Mitchell

    27 Nov 14 at 12:24 am

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    harold

    30 Nov 14 at 10:40 pm

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    Zachary

    1 Dec 14 at 2:10 am

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    Allan

    4 Dec 14 at 9:50 pm

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    Melvin

    8 Dec 14 at 7:54 pm

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    wesley

    9 Dec 14 at 1:26 pm

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    12 Dec 14 at 8:02 am

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    Barry

    13 Dec 14 at 5:35 pm

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