This paper examines economic developments and policies in Canada during 1990–95. Spurred by the robust growth in the United States and the easing of monetary conditions between 1991 and 1993, economic growth in Canada continued to strengthen during 1994. Real GDP grew by 4.5 percent in 1994 after growing by 2.2 percent in 1993 and 0.6 percent in 1992. Economic growth in 1994 was led by exports and investment in machinery and equipment. However, growth was more broadly based in 1994; private consumption strengthened, and there was a rebound in residential and nonresidential construction.
This Selected Issues paper reviews empirical evidence on the main determinants of the real bilateral exchange rate between the Canadian and the U.S. dollars, with particular emphasis on the role played by cyclical and longer-term economic factors. The paper aims to identify the nature of the shocks that have contributed to the recent downward trend in the Canadian dollar. The analysis shows that fluctuations in the real bilateral exchange rate can be explained reasonably well by its long-term fundamentals. The paper also analyzes inflation and the natural rate of unemployment in Canada.
This Selected Issues paper for Canada presents comprehensive and broad-based analysis of the role of domestic and external shocks. Canada’s economic history illustrates the important role played by external as well as domestic macroeconomic disturbances. Canada’s economy slowed in 2001 because of the global slowdown, although by less than in many other countries. In 2003, the recovery has been interrupted by a series of shocks that moderated growth. Fluctuations in Canadian real GDP are explained by external and domestic cycles.
This Selected Issues paper reviews Canada’s business tax system, looking at the incentive effects of the country’s business tax regime and their implications for output and employment. It presents estimates of marginal effective tax rates on corporate-source income in Canada and comparator countries across sectors, asset classes, means of finance, and asset ownership. The paper also examines labor markets in Canada. It notes that unemployment rates in Canada have risen across all demographic groups, industries, and regions, although young and less-educated workers and workers in agriculture and primary industries have been most severely affected.
Ruud de Mooij, Mr. Alexander D Klemm, and Ms. Victoria J Perry
In recent years, newspaper headlines have featured terms such as “digital service taxes,” “paradise papers,” and “tax wars,” all referring to various issues in international taxation. These and related topics have long been discussed among tax experts from academia, businesses and policy circles. Recently, increased strains on government budgets after the global financial crisis and information that journalists have revealed about the very low global taxation of some large and profitable multinational corporations have triggered political and popular upheaval going far beyond the small group of tax insiders.
Technology is being harnessed to redefine traditional business models and provide new ways for buyers and sellers to interact both locally and globally. The result has been the emergence of a handful of firms—the so-called tech giants—that are capitalizing on first mover advantages and network externalities to boost profitability, capture market share, and turn themselves into the world’s most highly valued companies. They have inevitably captured the attention of policymakers, and in the realm of international taxation, the debate has coalesced around a number of issues that are driving the debate over whether and how countries should be able to tax the returns to highly digitalized multinational businesses (IMF 2014, 2019). More generally, an increasing number of firms are digitaliz-ing, leading to several issues that raise or intensify challenges for the international tax system.
Source-based taxation lies at the heart of the current international tax architecture (see Chapter 3), and its importance has further risen with the abolition of worldwide taxation of active business income by essentially all of the major capital exporting economies, including now the United States, the United Kingdom, and Japan.1 Notwithstanding its importance, defining the source of income is increasingly problematic, as discussed in Chapter 5. It has been made more difficult by the increasing importance of intrafirm cross-border trade and complex production chains, the increasing contribution of hard-to-value and easily mobile intangible assets to value added, and the increasing digitalization of the economy—and this increasing digitalization means that the old idea of physical presence as the main criterion for source is outmoded (see Chapter 10).
Kiyoshi Nakayama, Ms. Victoria J Perry, and Mr. Alexander D Klemm
The world is in a state of fairly deep confusion regarding whether the international tax system is to be moved toward or away from residence-based corporate taxation. Chapter 7 outlined the parameters of that confusion and described the historical and recent steps that have been taken to strengthen the application of the residence basis; these steps have included combatting both the erosion of the tax base and the practice of shifting taxable profits. This chapter explores ways in which those efforts could be, and are being, strengthened still further. Yet, at the same time, as also described in Chapter 7, most advanced economies—the primary capital exporters—have now moved away from worldwide taxation toward territorial systems that in theory tax active business income at the source only, by one mechanism or another, largely for reasons of tax competition.
Country-specific origin-based profit taxes are marked by profit shifting and tax competition (see Chapter 6). Incentives for profit shifting can be mitigated, but not eliminated, by stricter rules and strengthening tax administration, while coordination can reduce the scope of tax competition but is hard to agree on (Chapter 11). Moreover, tighter anti-tax-avoidance rules often raise compliance and administrative costs and may intensify tax competition (Chapter 9).