Squeaky Hinges: Widening the Door to Canadian Cross-border Investment

For the period 2001-2007, Canada ranked only 25th among 98 countries in its openness to world markets as measured by cross-border investment flows as a percentage of GDP. For inbound investment flows alone, it ranked 47th. Canada should look to dismantle barriers to both inbound and outbound foreign investment to increase business exposure to global competition.international policy, foreign direct investment, direct investment abroad

Canadian Manufacturing Malaise: Three Hypotheses

The danger in politicians promoting the idea that “Dutch Disease” is responsible for the decline of the Ontario manufacturing sector is that the suggestion implies that Canada’s manufacturing sector will bounce back if only we could slow down oil sands development, or if the Canadian dollar were to devalue. In reality, evidence suggests that the decline in Ontario manufacturing is the result of long-term structural changes in the economy, independent of the rise of the country’s natural-resource sector and the rising dollar. And the sooner policymakers realize that, and stop blaming the decline in manufacturing on Dutch Disease (which holds that a booming natural-resource sector that drives up our dollar makes our manufacturing exports less competitive) the sooner they can get to work on helping manufacturing-dependent regions transition to the evolving economy. A closer analysis of Canada’s manufacturing sector shows that jobs in that sector have been disappearing across the country since the end of the Second World War, with the sector’s share of employment falling dramatically well before rapid development began to take hold in the oil sands, and back when Canada’s dollar was still worth far less than the American dollar. It is a trend that has been occurring among most of our OECD peers, including the United States, which may be due to the widespread reallocation of production to lower cost countries. But it is also true that Canada’s manufacturing productivity performance in particular has been declining for a generation, with especially poor performance in the last decade, when labour productivity in Canada grew at just a quarter of the U.S. rate. Meanwhile, capital investment that may have improved the competitiveness of Canadian manufacturing has been anemic.  Yet there is no particular reason to lament the scaling-down of manufacturing jobs in Ontario. The province remains just as economically important, as a share of national GDP, as it was 30 years ago, and its unemployment rate has remained roughly in line with the Canadian average. Often the manufacturing jobs that disappear soonest are low-skill, low-paying jobs. Indeed, those workers that have remained in the sector have done very well, with the growth in weekly earnings in the Ontario manufacturing sector outpacing the national average. It would be a grave mistake for Ontario’s policy-makers to argue in favour of hampering Canada’s oil sands development in hopes that it might devalue the dollar and revive their province’s shrinking manufacturing base. It would harm the national economy and yet, judging by the evidence, may do nothing to add jobs at Ontario’s factories. Instead, Ontario’s policymakers should accept that those jobs might never return, and instead, focus their energies on finding ways to encourage growth in high-skill, high-paying jobs in other sectors that offer more promise

Canada’s Foreign Direct Investment Challenge: Reducing Barriers and Ensuring a Level Playing Field in the Face of Sovereign Wealth Funds and State-Owned Enterprises

Recent takeovers – and attempted takeovers – of strategic resource companies have renewed concerns that some of Canada’s prized corporate players are falling into foreign hands. However, data shows that Canada has not been a significant attractor of multinational investment, lagging behind a number of developed and developing nations. Indeed, since the mid-1990s, Canada has been a net exporter of capital in world markets, as foreign direct investment by Canadian companies far outpaced the inflow of foreign capital. Rather than being hollowed out, we are hollowing out other countries. As a general policy, Canada should reduce barriers to foreign direct investment and welcome our growing role in international markets. As many studies have shown, foreign direct investment brings significant net benefits to the Canadian economy, including knowledge transfers, new management, better wages and productivity. Only in limited circumstances, such as in the case of protecting Canada’s national security, should Canada block foreign takeovers of Canadian companies. In the interest of neutrality and minimizing economic distortions, takeovers of Canadian companies by foreign sovereign wealth funds or state-owned enterprises should be reviewed on a case-by-case basis. When state-owned enterprises have similar commercial objectives and operate on a level-playing field without financial support by state owners, they could also provide net benefits to the Canadian economy. One important area that requires further consideration is with respect to the tax-exempt status of sovereign wealth funds and state-owned companies. Canadian tax treaties should be reviewed to ensure that Canadian withholding taxes maintain an even playing field among private and state-owned businesses operating in Canada

No More Second-Class Taxpayers: How Income Splitting Can Bring Fairness to Canada’s Single Income Families

The Canadian personal income tax system does not pay much attention to whether the amount of money an individual brings home is supplemented by the income of a spouse or not. That means that families where one spouse earns more than the other get taxed at a higher rate than families where two working partners earn the same total income split evenly between two paycheques. In fact, a family with just a single earner making $70,000 a year pays 30 per cent more in taxes every year than a family with two partners making$35,000 a year. A single-earner family taking in $120,000 a year pays the same income tax as a dualearning couple making$141,000 between them. The federal Conservative government has at least suggested it wants to finally level that playing field — nearly six decades after a royal commission recommended that the income tax system be changed to recognize total family household income, rather than focusing on each individual’s income. Given that Canada’s income tax system aims to treat people in similar circumstances as equally as possible, it is certainly time to let couples split their income so they do not face a penalty in higher tax rates than those faced by couples bringing home the same amount of total pay. While couples with just a single earner enjoy some advantages, a dual-earning couple does not — namely the extra time the stay-at-home spouse is able to use to raise children and produce other unpaid, home-based benefits — that can be accounted for using other means. Specifically, cutting out the transferability of the unused portion of the basic personal tax exemption for couples splitting income — requiring couples splitting their income to each earn money in order to use this credit — is one way to account for the difference in unpaid benefits that single-income families do typically enjoy more than dual-income couples. That is one mechanism; there may still be others the government might consider. But the bottom line is that there are ways to account for certain non-labour-market-related differences between single-earner families and dual-earner families. No doubt many of these proposals would be an improvement over the current, where two different families subsisting on the same pay are taxed very differently, with one type of family penalized simply because of how their income is earned

Size, Role and Performance in the Oil and Gas Sector

The oil and gas sector is a key driver of the Canadian and Albertan economies. Directly and indirectly it typically accounts for roughly half of Alberta’s GDP, as well as one-third of the country’s business investment and a quarter of business profits — and rising global demand will only add to these figures. However, that energy sector is also a changeable place populated by companies of all shapes and sizes, from small Emerging Juniors to wellestablished Majors whose daily production capacities are hundreds or thousands of times greater. The sector’s assorted firms have different structures and ambitions, respond in distinct ways to market forces and have unique impacts on the economy. These differences in size, role and performance must be reflected in energy and related economic policies if they are to be effective in achieving policy goals. For example, they must recognize that the smallest firms are not always the fastest growers or the most innovative; that Intermediates are the most highly leveraged, with the highest debt-to-equity ratios; and that while Majors tend to have the lowest average cost per well drilled, they also (along with Emerging Juniors) have the highest operating costs. Despite the industry’s critical importance, relatively little hard data has been made available concerning companies’ structure, behaviour and performance, based on size. This paper goes a considerable way toward filling that gap, bringing together comprehensive datasets on 340 public oil and gas firms to chart essential patterns and trends, so policymakers and industry watchers can better understand the complexity and functioning of this important sector

Income risk and the voluntary provision of public goods

Bibliography: p. 32-39This thesis investigates how charitable giving and voluntary contributions to public goods are affected by the presence of income risk. Previous empirical work has used micro data to measure income risk, finding evidence of a negative effect of risk on charitable giving. Rather than attempting to use a proxy to measure income risk, this thesis uses an experimental approach to control for income risk by including risk into individual endowments while conducting a public goods experiment. The results show that individuals do not base their decisions on the expected value of their endowment. Instead, individuals ignore the probabilities of potential outcomes, and focus on their maximum potential endowment when making their contribution decisions

Essays on Taxation and Investment

This thesis examines the importance of taxation on firm investment. The thesis shows that low tax rates are effective at increasing investment in an international context, but also that the design of tax system can cause significant distortions in the incentives for firms to invest. The first chapter of this thesis shows the significance of the complete tax system, outside of simple corporate statutory tax rates, on determining foreign investment inflows. The second chapter shows how government intervention in the credit market can have positive or adverse effects on the investment and risk-taking of small businesses. The final chapter looks at how the corporate tax system's treatment of corporate losses affects the incentive for firms to invest based on their profitability. The thesis provides new understanding of the importance of tax design in affecting firm investment behaviour

No More Second-Class Taxpayers: How Income Splitting Can Bring Fairness to Canada’s Single Income Families

The Canadian personal income tax system does not pay much attention to whether the amount of money an individual brings home is supplemented by the income of a spouse or not. That means that families where one spouse earns more than the other get taxed at a higher rate than families where two working partners earn the same total income split evenly between two paycheques. In fact, a family with just a single earner making $70,000 a year pays 30 per cent more in taxes every year than a family with two partners making$35,000 a year. A single-earner family taking in $120,000 a year pays the same income tax as a dualearning couple making$141,000 between them. The federal Conservative government has at least suggested it wants to finally level that playing field — nearly six decades after a royal commission recommended that the income tax system be changed to recognize total family household income, rather than focusing on each individual’s income. Given that Canada’s income tax system aims to treat people in similar circumstances as equally as possible, it is certainly time to let couples split their income so they do not face a penalty in higher tax rates than those faced by couples bringing home the same amount of total pay. While couples with just a single earner enjoy some advantages, a dual-earning couple does not — namely the extra time the stay-at-home spouse is able to use to raise children and produce other unpaid, home-based benefits — that can be accounted for using other means. Specifically, cutting out the transferability of the unused portion of the basic personal tax exemption for couples splitting income — requiring couples splitting their income to each earn money in order to use this credit — is one way to account for the difference in unpaid benefits that single-income families do typically enjoy more than dual-income couples. That is one mechanism; there may still be others the government might consider. But the bottom line is that there are ways to account for certain non-labour-market-related differences between single-earner families and dual-earner families. No doubt many of these proposals would be an improvement over the current, where two different families subsisting on the same pay are taxed very differently, with one type of family penalized simply because of how their income is earned

Size, Role and Performance in the Oil and Gas Sector

The oil and gas sector is a key driver of the Canadian and Albertan economies. Directly and indirectly it typically accounts for roughly half of Alberta’s GDP, as well as one-third of the country’s business investment and a quarter of business profits — and rising global demand will only add to these figures. However, that energy sector is also a changeable place populated by companies of all shapes and sizes, from small Emerging Juniors to wellestablished Majors whose daily production capacities are hundreds or thousands of times greater. The sector’s assorted firms have different structures and ambitions, respond in distinct ways to market forces and have unique impacts on the economy. These differences in size, role and performance must be reflected in energy and related economic policies if they are to be effective in achieving policy goals. For example, they must recognize that the smallest firms are not always the fastest growers or the most innovative; that Intermediates are the most highly leveraged, with the highest debt-to-equity ratios; and that while Majors tend to have the lowest average cost per well drilled, they also (along with Emerging Juniors) have the highest operating costs. Despite the industry’s critical importance, relatively little hard data has been made available concerning companies’ structure, behaviour and performance, based on size. This paper goes a considerable way toward filling that gap, bringing together comprehensive datasets on 340 public oil and gas firms to chart essential patterns and trends, so policymakers and industry watchers can better understand the complexity and functioning of this important sector