The design of tax policy in Canada: thoughts prompted by Richard Blundell's 'Empirical evidence and tax policy design' Kevin Milligan ~ Vancouver School of Economics ~ University of British Columbia

The design of tax policy in Canada: thoughts prompted by Richard Blundell's 'Empirical evidence and tax policy design'

Canadian Journal of Economics, Vol. 44, No. 4 (November 2011), pp. 1184-1194.
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Abstract:

Richard Blundell has written a thoughtful and informative article describing how empirical evidence informed the Mirrlees Review, and how evidence can and should inform tax policy in general. He focuses on the taxation of earnings. Income from employment makes up about 67% of the personal income tax base in Canada. Yet, in both the academic literature and in practical tax administration, the taxation of capital income (which amounts to only 11% of the income tax base) consumes a far greater share of attention and effort. Such a proportional comparison is misleading, of course, since economics happens at the margins- tax design is most important for efficiency where behaviour is most affected by taxation. Richard Blundell argues convincingly, however, that several windows of lifecycle labour supply are quite sensitive to taxation and therefore important objects of attention for tax design.

In response to Richard Blundell's article, I present here some thoughts from a Canadian tax perspective. My thoughts here are organized by first noting three similarities in Richard Blundell's analysis to the situation in Canada, then three major differences. Within these groupings, I offer a buffet of broader-based general comments mixed with specific empirical calculations. Following the discussion of these similarities and differences, I close with a few brief words in conclusion.

Versions:

Published version, November, 2011: DOI.

Earlier Draft, August, 2011 PDF.


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