TAXATION AND PARTIAL MOBILITY OF CAPITAL IN A BI-CALCULABLE STATISTICAL BALANCING MODEL OF QUEBEC AND THE REST OF CANADA

• Published in: Actualité économique 2011-06, Vol.87 (2), p.175-203
• Main Authors: Decaluwe, Bernard, Lemelin, Andre, Bahan, David, Annabi, Nabil
• Format: Article
• Language: fre
• Subjects: Canada; Economic models; Effective income tax rates; Equilibrium
• ISSN: 0001-771X

This paper presents some of the outstanding innovations featured in the static version of the large, multisector, bi-regional computable general equilibrium (CGE) model of Quebec and the Rest-of-Canada developed for the ministere des Finances du Quebec. It focuses on the marginal effective tax rate (METR) approach to capital taxation, and partial capital mobility. The objective is to describe a modelling technique to examine capital allocation with a static model, in spite of the fact that it is a fundamentally dynamic issue. METRs measure the "fiscal wedge" between the rate of return paid to capital owners, and the value of the marginal product of capital. So they synthetize the numerous distortions in resource allocation incentives which may result from the tax system. The introduction of METR's becomes interesting when capital is mobile between competing uses. In the static version of the model, capital is not perfectly mobile, as would be appropriate in a very long term static model; rather, it is partially mobile between industries and regions, mobility being restrained by imposing an upper bound on the quantity of capital that may leave a given industry in a given region. In addition, there is some degree of international capital mobility in the model, in the form of constant price-elasticity supply. In simulation results, the model's behaviour is consistent with analytical expectations. [PUB ABSTRACT] Reproduced by permission of Bibliothèque de Sciences Po