Economic Growth and Employment Effects

Of Public Policy Reforms in Ontario

Benjamin Zycher*

March 2014

Summary

Geographic entities and regions must compete for individual and business

location choices and favorable investment decisions. Public policies affect this

geographic competition in important ways that can be summarized as the creation of an

environment---that is, an overall set of economic incentives---either strengthening or

weakening local competitiveness relative to the environments characterizing other

geographic entities.

This study examines the underlying economics and policy analytics of four policy

reforms that have been proposed for Ontario, and develops empirical estimates of their

prospective effects upon Ontario GDP and employment. The four proposed reforms are

as follows:

A reduction in the Ontario corporation income tax rate from 11.5 percent to 8

percent, with a budget-neutrality constraint assumed to be imposed through a

reduction in government transfers to corporations.

An elimination of provincial “feed-in” (and perhaps other) subsidies for wind and

solar electricity.

A reduction in the regulatory burden, two manifestations of which are the

commercial recycling taxes and fees administered by Waste Diversion Ontario

and the development constraints imposed by the Far North Act.

Ontario participation in the New West Partnership Trade Agreement.

The findings of the empirical analysis reported below can be summarized as

follows. The proposed reduction in the corporation income tax would increase annual

Ontario GDP by about $8.4 billion, and full-time equivalent employment by about

14,000. A reduction in feed-in tariffs and other subsidies for uneconomic power that

would reduce the Ontario power cost index to the average for Canada as a whole would

increase provincial GDP by $20 billion annually, and employment by about 5,000. The

analysis does not find important GDP or aggregate employment effects from participation

in the NWPTA; this may be the case because relatively free trade with the U.S. constrains

the degree to which provinces are able to engage in overt and hidden protectionism.

* Economist, Washington D.C. This work is sponsored by the Ontario Progressive Conservative Caucus,

but does not purport to represent its views or those of any of its officers or sponsors. Sincere thanks are

due William R. Allen, Richard J. Buddin, and Laurence A. Dougharty for insightful suggestions, but the

author retains sole responsibility for any remaining errors.

2

There can be little doubt, however, that participation in the NWPTA would improve labor

mobility and reduce economic rigidities. Finally, it is clear that the regulatory burden is a

very large somewhat-hidden tax on the Ontario economy; a regulatory reform that were

to reduce the Ontario regulatory burden by adopting the best practices of leading

provinces in Canada would increase GDP by $27 billion and total employment by about

10,600. This analysis is based upon the 2013 Fraser Institute ranking of economic

freedom, which separates out three component dimensions of regulation, with provincial

and municipal governments combined.

These economic benefits of the proposed reforms are substantial, and the

rationales offered in defense of the status quo are dubious. Policymakers should address

these reforms in a serious fashion.

I. Introduction

Just as firms and industries must compete for consumer purchase choices, for

employees, and for capital investments, so must geographic entities and regions compete

for individual and business location choices and favorable investment decisions. Public

policies affect this geographic competition in important ways that can be summarized as

the creation of an environment---that is, an overall set of economic incentives---either

strengthening or weakening local competitiveness relative to the environments

characterizing other geographic entities.1 To some degree, this competitive dynamic is

likely to strengthen as geographic proximity increases, but there can be little doubt that

geographic competition is created by the ability of individuals and businesses to move

among regions generally and policy jurisdictions in particular. The ease with which

investment capital can be shifted on a worldwide basis strengthens this competitive

process.

A large number of public policies affect such overall competitiveness.

“Competitiveness” in this context is the ability to attract labor and capital and to produce

absolute and relative economic conditions characterized by higher individual incomes,

greater aggregate productivity, stronger employment growth, and the like. Tax policies

are an obvious example. Taxes (or effective tax rates) lower rather than higher---other

factors held constant---would improve relative competitiveness by increasing private

returns to work and investment. Tax burdens aligned more rather than less closely with

the benefits of public spending programs are likely to do the same.2 Environmental

1 For a useful comparison study of the U.S. states in terms of such competitiveness parameters, see Arthur

B. Laffer, Stephen Moore, and Jonathan Williams, Rich States, Poor States: ALEC-Laffer State Economic

Competitiveness Index, American Legislative Exchange Council, 2013, at http://alec.org/docs/RSPS-6th-

Edition. See also William P. Ruger and Jason Sorens, “Freedom In the 50 States: An Index of Personal

and Economic Freedom, Mercatus Center, 2013, at http://mercatus.org/publication/freedom-50-states-

2013-edition. See also Dean Stansel and Fred McMahon, Economic Freedom of North America, Fraser

Institute, 2013, at http://www.freetheworld.com/efna.html; and The Fraser Institute, Economic Freedom of

the World: 2012 Annual Report, at http://www.freetheworld.com/release.html. 2 Note that taxes can be too low as well as too high: A zero tax environment relative to a “low” tax one is

unlikely to yield strong competitiveness because public services provide value, and government may have a

3

policies clearly affect competitiveness, as individuals and businesses making location

decisions are certain to value improved environmental quality while attempting to

balance it against the perceived costs of the policies implemented to achieve it. The

tradeoffs among the amounts, quality, and costs of public services are another broad

example, however obvious. Trade policies affect the degree to which a given geographic

entity can exploit its comparative advantages---the productive activities that it can

undertake at a (marginal) cost lower than those of other regions---thus achieving greater

specialization, productivity, and wealth.3 Various regulatory policies and the benefits and

costs that they yield are yet another obvious example.

In short, “competitiveness” in this context can be viewed as the degree to which

resources are allowed to flow or are directed (by market prices) to their most productive

uses, thus increasing aggregate wealth. Governments implement public policies in

substantial part as a response to the demands of interest groups, which may be broad-

based (or diffused) coalitions or narrow (concentrated) interests. A substantial literature

has noted that concentrated interests enjoy an important advantage relative to diffused

interests in terms of exerting pressures on government officials for favorable policies, in

brief because lobbying and other activities intended to persuade public officials to adopt

given policies are collective goods from the viewpoint of any given member of an interest

group. The standard free-rider problem is likely to increase in importance with the size

or diffusion of the group, although policy proposals that affect large majorities in ways

easily measureable or easily perceived may overcome this condition.4

comparative advantage in the provision of certain services. In the context of provincial governance,

policing may be a good example. 3 Trade among geographic regions and nations increases competitive pressures and thus output also by

constraining the ability of governments to impose inefficient costs. It does this also by facilitating the

allocation of resources and productive activities in accordance with the reduced costs and increased

productivity yielded by economic specialization. Since no one is forced to trade, trade itself and the

efficiencies that it promotes increase wellbeing for all, if we define “wellbeing” in a way that respects the

choices that individuals make for themselves on a voluntary basis. Accordingly, this productive

specialization allows each region or nation---and, in principle, each individual---to attain greater wealth and

thus a higher living standard than would be the case were trade to be constrained or largely prohibited. For

a nontechnical summary discussion, see Bob McTeer, “The Impact of Foreign Trade on the Economy,”

New York Times, December 10, 2008, at http://economix.blogs.nytimes.com/2008/12/10/the-impact-of-

foreign-trade-on-the-economy/. Obviously, those subjected by trade to stronger competitive pressures

might be made worse off in their role as producers; an obvious example is low-wage workers subjected to

implicit competition from workers overseas. But most are made better off in their roles as consumers when

aggregate wealth---the total consumption pie---is increased, as reflected in the downward pressure on the

aggregate price level that trade exerts by increasing the size (or value) of the aggregate basket of goods and

services. In plainer language: Trade makes the economy bigger and thus almost everyone better off. 4 One way to define “diffusion” is the magnitude of the effect of a given policy on the average (or median)

member of the interest group, either absolutely or as a proportion of the total effect. See Mancur Olson Jr.,

The Logic of Collective Action, Cambridge: Harvard University Press, 1965; Douglass C. North and John J.

Wallis, “American Government Expenditures: A Historical Perspective,” American Economic Review, Vol.

72, No. 2 (May 1982), pp. 336-340; and Gordon Tullock, “Problems of Majority Voting,” Journal of

Political Economy, Vol. 67, No. 6 (December 1959), pp. 571-579. For a summary discussion, see Dennis

C. Mueller, Public Choice III, Cambridge: Cambridge University Press, 2003, pp. 501-559.

4

In principle, the policies that emerge from the processes of political competition

can be efficient---wealth-enhancing for the economy as a whole---or inefficient, that is,

consistent or inconsistent with a strengthening of (regional) competitiveness as just

described. Efficient policies at a general level might correct for allocational distortions

emerging from market competition, perhaps because the full social costs of particular

activities are not reflected in market prices. Similarly, market prices may not reflect the

benefits received by third parties from particular activities. Note that it is far from

obvious that government has net incentives or the information needed to “correct” for

such distortions correctly; and interest-group competition under democratic institutions

easily can yield outcomes reducing the efficiency of resource use, particularly if large

amounts of resources are consumed in “rent-seeking” efforts to influence political

outcomes. Also at a general level, political interest groups have powerful incentives to

use democratic processes to transfer wealth to themselves from others; accordingly, it is

straightforward to predict that such redistribution will be an important direct or indirect

effect of the policies adopted as a result of the political competition among interests

engendered by democratic institutions.5 Under a broad range of conditions, this

redistribution is inefficient---inconsistent with enhanced competitiveness---because it

induces a shift of real resources into a set of activities different from that maximizing

aggregate wealth, and because it induces both the winners and the losers to invest real

resources in efforts to effect or to prevent this redistribution rather than in socially-

productive activities.6

This paper reports empirical findings on the economic growth and employment

effects of the following four prospective policy reforms in Ontario:

A reduction in the Ontario corporation income tax rate from 11.5 percent to 8

percent, with a budget-neutrality constraint assumed to be imposed through a

reduction in government transfers to corporations.

An elimination of provincial “feed-in” (and perhaps other) subsidies for wind and

solar electricity.

5 Consider for example a majority coalition (50 percent of the voters plus one) allocating budget dollars

between a collective program yielding benefits for all and a special-interest program yielding benefits only

for members of the majority. The majority (the median voter) has incentives to reduce outlays on the

collective program by one dollar per voter so that two dollars per member of the majority can be spent on

the special-interest program. The majority will support this budget reallocation until two dollars of the

special-interest program have the same marginal value to members of the majority as one dollar of the

collective program. The political “majority” in this simple example can be a coalition of political

minorities. From the social standpoint, this outcome is inefficient---that is, wealth-reducing---because one

dollar of the collective program should have the same marginal value as one dollar of the special-interest

program. This inefficiency result remains true even if we ignore the economic costs of efforts by the

majority to effect this outcome and of efforts by the minority to avoid it. See James M. Buchanan, The

Demand and Supply of Public Goods, Chicago: Rand McNally, 1968, pp. 40-75. 6 These efforts usually are called “rent-seeking” and “rent-defending,” respectively. Under some

conditions, redistribution viewed in isolation (ignoring the resources consumed by rent-seeking and rent-

defending) is neither efficient nor inefficient from the social standpoint, as it merely shifts wealth from one

set of individuals to another. Moreover, some redistribution may be efficient if individuals care about the

wellbeing of strangers, or if such policies are supported by voters as a form of social insurance.

5

A reduction in the regulatory burden, two manifestations of which are the

commercial recycling taxes and fees administered by Waste Diversion Ontario

and the development constraints imposed by the Far North Act.

Ontario participation in the New West Partnership Trade Agreement.

The quantitative employment and output effects of these proposed reforms are

estimated in the statistical analysis reported below, to the extent that the respective

marginal effects can be discerned in the data. Section II presents hypotheses about the

qualitative effects of each of the prospective reforms, and offers brief summaries of some

relevant empirical literature, not as an exhaustive review, but instead as a tool with which

to formulate the hypotheses about the prospective effects of the individual policy

reforms. Section III reports new findings on the prospective output and employment

effects of the reforms for Ontario. Section IV offers conclusions and policy

recommendations.

II. A Summary Discussion of the Prospective Reform Policies and

Empirical Hypotheses Suggested By the Recent Literature

This qualitative discussion is offered as a brief summary introduction to the basic

economics of the policy reforms listed above, and thus as a foundation for the

econometric analysis reported in section III.

A Reduction in the Corporation Income Tax. This reform can be hypothesized to

yield increases in both output and employment, as a reduction in tax rates would increase

the returns to investment, and the resulting increase in investment itself would increase

the demand for labor under the reasonable assumption that capital and labor are

complementary inputs in the aggregate.7 As an aside, that increase in labor demand

would increase labor compensation in a competitive labor market as long as labor supply

is not perfectly elastic, that is, as long as the amount of labor supplied is responsive to

changes in labor compensation. Labor supply is relatively inelastic as an empirical

matter, so it is reasonable to predict that a reduction in the corporation income tax indeed

would yield higher wages.8

7 Just as there is a demand for labor and other inputs derived from the market demand for the good being

produced, there is a demand for capital investment (or capital inputs) on the part of firms. That demand

curve (or demand function) is the relationship between the interest rate that the firm must pay, whether

explicit or implicit, and the amount of investment made in a given time period. This demand curve shifts

out and in, respectively, as the expected rate of return to investment rises and falls. 8 For discussions of the recent literature, see Robert McClelland and Shannon Mok, “A Review of Recent

Research on Labor Supply Elasticities,” Congressional Budget Office Working Paper 2012-12, October

2012, at http://www.cbo.gov/sites/default/files/cbofiles/attachments/10-25-2012-

Recent_Research_on_Labor_Supply_Elasticities.pdf; and Michael Keane and Richard Rogerson, “Micro

and Macro Labor Supply Elasticities: A Reassessment of Conventional Wisdom,” Journal of Economic

Literature, Vol. 50, No. 2 (June 2012), pp. 464-476. In general, the incidence (or economic burden) of a

tax is borne in proportion to the relative elasticities (or “responsiveness”) of demand and supply in the

relevant market. Market participants confronted with greater “difficulty” in terms of escaping the tax by

shifting among economic sectors will bear a greater proportion of the tax. For nontechnical discussions of

tax incidence, see e.g., Cecil E. Bohanon and Brandon M. Pizzola, “Who Pays the Tax? Theoretical and

6

There is the further matter that in a world in which the marginal productivity of

resources is higher in the private sector than in the public sector---that is what it means to

say that the government budget is too large9---a budget-neutral reduction in the

corporation income tax would increase the size of the economy writ large by shifting

resources from the government sector to the private sector.10

Note that this central

implication of public choice analysis---that incentives inherent in the political

competition shaped by democratic institutions yields government larger than optimal---is

important in the context of the reforms examined here, in that a zero-tax environment is

very likely not to be efficient because government output is not worthless, and at some

margin is likely to be worth what it costs in terms of real resources.11

Unless ownership of corporate capital is a better proxy for the demand for (some)

provincial public services than is the case for taxes more visible---not a hypothesis

obviously correct---a reduction in provincial corporate tax rates is likely to be efficient.

The assumed offsetting reduction in government transfers to corporations, apart from

satisfaction of the budget-neutrality condition, at a more subtle level is a reasonable

approximation of a likely political quid pro quo, and is likely also to be efficient unless

the transfers are payments for the provision of collective goods, whether directly or

indirectly, or are offsets for other inefficient policies yielding reductions in capital

investment. In that last case, a more direct approach would be elimination of those

inefficient policies rather than the introduction of offsetting transfer payments.

The Ontario corporation tax rate at the higher level is 11.5 percent,12

shunting

aside the complexities introduced by differing treatment of various kinds of corporate

Empirical Considerations of Tax Incidence,” monograph, Mercatus Center, September 24, 2012, at

http://mercatus.org/sites/default/files/TaxIncidence_Bohanon_1.pdf; and The Annual Report of the Council

of Economic Advisers, February 2004, pp. 103-116, at http://www.gpo.gov/fdsys/pkg/ERP-2004/pdf/ERP-

2004-chapter4.pdf. 9 See Benjamin Zycher, “State and Local Spending: Do Tax and Expenditure Limits Work?”, monograph,

American Enterprise Institute, May 2013, at http://www.aei.org/papers/economics/fiscal-policy/taxes/state-

and-local-spending-do-tax-and-expenditure-limits-work/, pp. 42-45. See also Lori L. Taylor and Stephen

A. Brown, “The Private Sector Impact of State and Local Government: Has More Become Bad?”,

Contemporary Economic Policy, Vol. 24, Issue 4 (October 2006), pp. 548-562. 10

In other words, the reduction in the corporation income tax would be paired with reductions in various

transfers to corporations. Accordingly, both revenues (at least in a static measurement) and spending

would be reduced, yielding a net transfer of resources to the private sector. In the short run, as resources

are redirected by market prices from the public to the private sector, there might be some unemployment of

labor and other resources during the time period in which they search for their most productive uses. This

is largely irrelevant analytically, since the search process itself implies that the net present value of the

stream of returns under conditions of a revenue-neutral tax reduction is positive. Note that the incidence

(burden) of the corporation income tax is likely to be borne by the owners of all capital, including human

capital, as after-tax rates of return to capital investments---including human capital---are equalized across

economic sectors. 11

See Dennis C. Mueller, Public Choice III, New York: Cambridge University Press, 2003, pp. 501-560;

William F. Shughart II and Laura Razzolini, eds., The Elgar Companion to Public Choice, Northampton:

Edward Elgar, 2001, pp. 357-493; and Geoffrey Brennan and James M. Buchanan, The Power to Tax:

Analytical Foundations of a Fiscal Constitution, New York: Cambridge University Press, 1980, pp. 13-54. 12

See the Canada Revenue Agency at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/rts-eng.html.

7

income.13

Across the provinces and territories, these tax rates range from 10 percent to

16 percent. Ferede and Dahlby find that for individual Canadian provinces, a reduction

in the corporation income tax rate of 1 percentage point yields an increase in annual

economic growth rates of 0.1-0.2 percentage points.14

That estimate suggests that a

reduction of 3.5 percentage points in the Ontario corporation income tax would yield an

increase in annual economic growth of around 0.5 percent.15

The Fered/Dahlby finding

is roughly consistent with other recent estimates reported in the empirical literature.16

With respect to employment, one study reports an estimate for the U.S. that a permanent

reduction in the corporation income tax rate from 35 percent to 25 percent would increase

employment by about 0.5 percent annually.17

A study of the recent Canadian experience

concludes that a reduction in the combined federal/provincial corporate tax rate of three

percentage points would reduce the unemployment rate by 0.26 percentage points, with

an attendant employment increase of about 50,000, or about 0.3 percent.18

Note that a tax

reduction by a given province would have a larger proportional employment effect than a

similar reduction by all provinces (or by the federal government), because movement of

individuals and businesses among provinces is very likely to be less costly (that is, easier)

than movement across national boundaries.

Subsidies for Unconventional Electricity. “Feed-in” and other such subsidies for

unconventional electricity reflect the reality that wind and solar power are uneconomic,

and thus require government support in order to attract private investment.19

The

13

See KMPG at http://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/TaxRates/Federal-

and-ProvincialTerritorial-Tax-Rates-for-Income-Earned-General-2013-2014.pdf. 14

Ergete Ferede and Bev Dahlby, “The Impact of Tax Cuts on Economic Growth: Evidence From the

Canadian Provinces,” National Tax Journal, Vol. 65, No. 3 (September 2012), pp. 563-594. 15

Note that a tax reduction by Ontario might engender similar reductions by other provinces as a means of

preserving competitiveness. The net effect on economic growth for Ontario of this kind of competitive

“rolling” tax reduction process might be smaller or larger than those reported in the Ferede/Dahlby work

referenced in fn. 13, supra. The Ferede/Dahlby findings, strictly speaking, do not apply to this different

conceptual experiment, which lies outside the scope of the analysis here. 16

See, e.g., OECD (2010), Tax Policy Reform and Economic Growth, OECD Publishing, at

http://www.oecd-

ilibrary.org/docserver/download/2310131e.pdf?expires=1393513057&id=id&accname=ocid41017141&ch

ecksum=92C848EB5A9F4038781DB48907305D90, pp. 94-97. A useful literature re view is offered by

William McBride, “What Is the Evidence on Taxes and Growth?”, Tax Foundation Special Report No. 207,

December 18, 2012, at http://taxfoundation.org/sites/taxfoundation.org/files/docs/sr207.pdf. 17

Karen Campbell and John L. Ligon, “The Economic Impact of a 25 Percent Corporate Income Tax

Rate,” Heritage Foundation, December 2, 2010, at http://www.heritage.org/research/reports/2010/12/the-

economic-impact-of-a-25-percent-corporate-income-tax-rate. 18

See CME Intelligence, “The Economic Impact of Corporate Tax Rate Reductions,” January 2011, at

http://www.cme-mec.ca/download.php?file=giubgju9.pdf. 19

See, e.g., Benjamin Zycher, Renewable Electricity Generation: Economic Analysis and Outlook,

Washington DC: AEI Press, 2011, at http://www.aei.org/book/energy-and-the-environment/alternative-

energy/renewable-electricity-generation/. The U.S. Energy Information Administration analysis of the

levelized costs of power production from conventional and unconventional technologies is available at

http://www.eia.gov/forecasts/aeo/electricity_generation.cfm; it is difficult to believe that generation costs in

Canada are very different from those in the U.S. for any given technology, as capital and energy inputs in

both cases must be obtained in competitive markets. (Transmission costs may differ because of varying

geographical characteristics and the like.) The externality argument for such subsidies does not survive

scrutiny; see Benjamin Zycher, “Wind and Solar Power, Part II: How Persuasive Are the Rationales?” at

8

following table summarizes the 2013 Energy Information Administration estimates of the

“levelized” (smoothed over the economic life of the capital investments) costs of power

production from alternative generation technologies.20

Table 1

U.S. Energy Information Administration Estimates of Levelized Power Production Costs

(year 2011 dollars per mWh for plants entering service in 2018)

________________________________________________________________________

Generation Technology Total Cost

________________________________________________________________________

Conventional coal 100.1

Combined-cycle gas 67.1

Advanced nuclear 108.4

Wind on-shore 86.6

Wind off-shore 221.5

Solar photovoltaic 144.3

Solar thermal 261.5

Hydroelectric 90.3

________________________________________________________________________

Note that the figure for on-shore wind power is highly dubious; the EIA estimate

only three years earlier was over $150 per mWh in year 2011 dollars.21

Because there is

little reason to believe that such true cost reductions (ignoring various subsidies) could

have been achieved given the unconcentrated energy content of wind flows,22

it is likely

to be the case that the new estimate has been shaped by political pressures within the

Obama administration. Since Canada and the U.S. have access to identical technologies,

except perhaps with respect to potential hydroelectric resources, the 2010 EIA cost

estimates can be assumed to reflect reasonable approximations of cost conditions in

Canada, with transmission costs likely to differ somewhat.

Accordingly, such subsidies for unconventional electricity must engender higher

taxes unless other government spending is reduced by an amount sufficient to finance the

subsidies for unconventional power; or they require higher consumer prices for

electricity, with adverse implications for competitiveness and for consumer spending in

other sectors, or some combination of higher taxes and consumer prices. Such effects are

inconsistent with enhanced growth in either output or employment, particularly given that

electricity consumption is correlated strongly with the growth of both GDP and

http://www.aei.org/outlook/energy-and-the-environment/alternative-energy/wind-and-solar-power-part-ii-

how-persuasive-are-the-rationales/. 20

Energy Information Administration, op. cit., fn. 19 supra. 21

See U.S. Energy Information Administration, “2016 Levelized Cost of New Generation Resources from

the Annual Energy Outlook 2010, at http://www.eia.gov/oiaf/aeo/pdf/2016levelized_costs_aeo2010.pdf. 22

See Zycher (2011), op. cit., fn. 19, supra.

9

employment. The following figure shows growth rates for Canadian real GDP, electricity

consumption, and total employment for the period 1981-2012.23

The simple correlation between growth in electricity consumption and real GDP

is 0.63; this means that a change of 1 percent in one is associated with a change of 0.63

percent in the other, in the same direction. Between electricity consumption and

employment growth, the simple correlation is 0.52; and between real GDP growth and

employment it is 0.86. These correlations are strongly positive. Correlation by itself is

not evidence of causation, demonstration of which requires a sensible economic and

statistical model; but it is not plausible in the context addressed here that adoption of

inefficient electric production technologies would enhance the growth of either GDP or

employment. The correlations and effects for Ontario may differ from those for Canada

as a whole, but it is, again, not plausible that the differences would be large, particularly

given that Ontario GDP is about 37 percent of the Canadian total.24

For Ontario, a system of electricity prices higher than those driven by competitive

forces was implemented under the Green Energy and Green Economy Act of 2009, in the

form of “feed-in” contract prices for expensive power produced by renewable

technologies the costs of which make them uncompetitive without subsidies.25

By 2018,

23

Sources: U.S. Energy Information Administration at

http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=2&pid=2&aid=2; and Statistics Canada at

http://www5.statcan.gc.ca/cansim/a33?RT=TABLE&themeID=3012&spMode=tables&lang=eng,

http://www5.statcan.gc.ca/cansim/a33?lang=eng&spMode=mainTables&themeID=3764&RT=TABLE,

and http://www5.statcan.gc.ca/subject-sujet/result-

resultat.action?pid=2621&id=1803&lang=eng&type=ARRAY&pageNum=1&more=0. 24

See Statistics Canada at http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/econ15-eng.htm. 25

For a summary description, see

http://www.ecoissues.ca/index.php/Powering_the_Future:_The_Green_Energy_and_Green_Economy_Act,

10

coal-fired capacity is to be eliminated, and wind, solar, and “bioenergy” technologies are

to represent about 25 percent of total generation capacity.26

Note that because such

unconventional power is far less reliable than conventional electricity, it cannot be

scheduled (“dispatched”), and so the availability (“capacity factor”) of renewables is far

lower than those of the latter technologies.27

The Ministry of Energy in November of

2010 forecast that the renewables program would increase residential power bills by 7.9

percent annually for five years.28

Another study estimates annual increases in total power

costs between 2011 and 2016 at 7.8 percent to 9.6 percent.29

A third analysis estimates

the cost per household at $247-$631 annually between 2010 and 2025, or 13.5 percent to

34.6 percent.30

If we use the lower bound of that range ($247 annually), the cost is 13.5

percent of the Ontario average residential monthly bill of $152.31

If we use the midpoint

of the range ($439), the cost is about 24 percent of the average. Note that the $152

average excludes the rebate program under the Ontario Clean Energy Benefit, because it

is irrelevant analytically, as it has the effect of hiding (or, rather, shifting) the higher costs

rather than reducing them.32

Zycher estimates that the California renewables power

mandate---at 33 percent of a poorly-defined base, somewhat higher than that of Ontario--

-would add 27 percent to the state’s electricity costs by 2020.33

Another study by Zycher

reports estimates that the California global warming law---heavily focused on the

_2009. For an analysis of environmental and economic effects, see Ross R. McKitrick, “Environmental

and Economic Consequences of Ontario’s Green Energy Act,” Fraser Institute, April 11, 2013, at

https://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-

news/research/publications/environmental-and-economic-consequences-ontarios-green-energy-act.pdf. 26

See the 2011 Annual Report of the Office of the Auditor General of Ontario, at Figure 1 (p. 88), at

http://www.auditor.on.ca/en/reports_en/en11/2011ar_en.pdf. 27

See Ibid. at Figure 10 (p. 111). As an aside, this lower capacity factor means that the installation of

unconventional capacity must be backed up with conventional units, which then must be ramped up and

down as wind flows and sunlight prove available and unavailable. This ramping reduces the efficiency of

the backup units, yielding an increase in the emission of effluents. See Bentek Energy, How Less Became

More: Wind, Power and Unintended Consequences In the Colorado Energy Market, April 16, 2010, pp.

25-33, at http://www.wind-watch.org/documents/wp-content/uploads/BENTEK-How-Less-Became-

More.pdf. 28

See the 2011 Annual Report of the Office of the Auditor General of Ontario, at

http://www.auditor.on.ca/en/reports_en/en11/2011ar_en.pdf, at 89. 29

Bruce Sharp, “Ontario Electricity Price Increase Forecast,” Aegent Energy Advisors Inc., March 21,

2012, at 15, at http://www.ontarioenergyboard.ca/OEB/_Documents/EB-2010-

0377/CME_SUB_Ontario%20Elec%20Price%20Increase%20Forecast%202012.pdf. 30

London Economics, “Examining the Potential Cost of the Ontario Green Energy Act, 2009,” April 30,

2009, at

http://www.londoneconomics.com/pdfs/Potential%20cost%20implications%20of%20Green%20Energy%2

0Act%20-%20final%20version.pdf; and Environmental Defence at

http://environmentaldefence.ca/sites/default/files/images/2014_Energy%20Bill%20_withtitle_0.jpg. 31

See Environmental Defence, Ibid. 32

See the Ontario Ministry of Energy at http://www.energy.gov.on.ca/en/clean-energy-

benefit/#.UyWnO87N140. Their reported monthly average bill of $137 includes the Ontario Clean Energy

Benefit rebate, a methodology that is incorrect analytically because rebates cannot reduce real resource

costs. Someone must bear them. 33

Benjamin Zycher, “The Looming Rate Bomb: The 33 Percent Renewable Electricity Mandate and

Electricity Prices in California,” monograph, Pacific Research Institute, January 2013, at

http://pacificresearch.org/fileadmin/templates/pri/images/Studies/PDFs/2013-

2015/ElectricityCosts_Zycher_F2.pdf..

11

substitution of renewable power for conventional electricity---would result in an

employment loss of about 5 percent of the working age population by 2020.34

A Reduction in the Regulatory Burden. The regulatory “burden” in a strict

analytic sense is the net economic cost of the regulatory environment: the value of

benefits from regulatory activity, however measured, minus the economic costs of the

regulatory enforcement. If that difference is less than zero, there is “too much”

regulation. Even in the case in which the difference is greater than zero, there still might

be too much regulation, that is, some individual regulatory burdens might be eased with

an increase in the net benefits of the regulatory system as a whole.35

The net effect of a

regulatory regime on employment and output defined broadly can be substantially

ambiguous because it is difficult to measure the economic value of environmental

improvement and many of the other explicit goals of regulatory policy.

On the other hand, some regulatory efforts are largely or purely exercises in

wealth redistribution. Two good examples are the system of recycling taxes and fees

administered by Waste Diversion Ontario, and the development constraints imposed by

the Far North Act; the efficiency arguments made in favor of both are deeply

problematic. One rationale for the Blue Box recycling program is that it recovers

“valuable resources,” as if the recycling effort itself does not consume “valuable

resources.”36

More generally: What is the rationale for the implicit assumption that the

market recycles too little?

The Far North Act is purported to have the effect of allowing the affected lands to

serve as a sink for 12.5 million tons of carbon dioxide annually.37

That discussion fails to

note that global GHG emissions annually are about 39 billion tons,38

of which 12.5

million tons would constitute 0.3 percent; the attendant effect on climate trends or other

such parameters would be effectively zero under any set of assumptions about the

underlying atmospheric science. The discussion goes on to note that the Ontario

government will “work with all northern communities and resource industries to create a

broad plan for sustainable development. New commercial forestry opportunities would

be made available through the planning process, and the opening of any new mines in the

Far North would require community land use plans, jointly developed with First Nations.

Never before has such comprehensive land use planning occurred in northern Ontario.”

Apart from the apparent faith in “planning”---a faith not consistent with vast experience--

-this means in practice that the government of Ontario inexorably will pick winners and

losers in the future economic development of the affected lands.

34

Benjamin Zycher, “Prospective Employment Effects of California Proposition 23: A Two-Stage Least

Squares and Simulation Analysis for 2010-2020,” monograph, Pacific Research Institute, October 2010, at

http://www.pacificresearch.org/docLib/201010041_CAProp23Study.pdf. 35

In other words, the efficient amount of regulation is the amount that equates the marginal benefits and

costs of the regulatory regime rather than the total benefits and costs. Even if the net benefit of the

regulatory system writ large is positive, some individual regulations might have negative net effects. 36

See Waste Diversion Ontario at http://www.wdo.ca/programs/blue-box/. 37

See http://www.ecoissues.ca/index.php/Far_North_Act,_2010. 38

See http://www.pbl.nl/sites/default/files/cms/publicaties/pbl-2013-trends-in-global-co2-emissions-2013-

report-1148.pdf.

12

If the costs and benefits of regulatory activity are more-or-less visible, it is

possible, but not obvious, that some regulatory outcomes might be roughly efficient as

they emerge from the complex bargaining processes characterizing legislative

policymaking.39

Accordingly, it is likely to be far more fruitful for purposes of the

analysis here to avoid an attempt to measure the benefits and costs of particular

regulations; instead, we utilize an examination of the aggregate Ontario regulatory

framework in comparison with those of other provinces to see if the Ontario ranking is

different to a significant degree. After all, it is not plausible that environmental quality

and other central objectives of regulatory policies differ radically across the provinces, in

particular because the Canadian federal government promulgates important dimensions

of regulatory policies.40

Accordingly, significant differences in regulatory costs across

the provinces would not imply differences in regulatory outcomes.

The New West Partnership Trade Agreement. Finally, participation in a free trade

arrangement among provinces would allow for the greater allocation of productive

activities in accordance with the central principle of lowest cost, or efficiency. The New

West Partnership Trade Agreement41

now is an accord among Alberta, British Columbia,

and Saskatchewan; Ontario is a possible new participant. The agreement is intended to

eliminate trade barriers and other forms of protectionism, favoritism toward local

economic interests, and “unnecessary” differences in standards and regulations42

; and to

establish a dispute resolution mechanism. Trade barriers can encompass far more than

narrow tariffs, customs, and duties; they can be imposed in the form of any legal or

financial constraint on the free flow of goods and services among the provinces.

Examples are contracting preferences for “local” (i.e., within province) firms, various

“quality” requirements or standards for goods, with the effect of favoring local producers,

many safety requirements, cross-border sales bans, small differences in licensing

requirements, agricultural marketing boards, and the like.

Such barriers were eased somewhat by the 1995 Agreement on Internal Trade, as

amended in 2009.43

But the AIT does not transform Canada into a single domestic

market, so that attempts to circumvent remaining trade barriers require such regional

accords as the NWPTA. Free (or freer) trade is an important component of reliance on

39

See James M. Buchanan, Public Finance in Democratic Process, Chapel Hill: University of North

Carolina Press, 1967, pp. 126-143. 40

As one example, see David R. Boyd, The Water We Drink: An International Comparison of Drinking

Water Quality Standards and Guidelines, David Suzuki Foundation, November 2006, at

http://www.davidsuzuki.org/publications/reports/2006/the-water-we-drink/. 41

This agreement formerly was the Trade, Investment, and Labor Mobility Agreement. Details of the

NWPTA can be found at http://www.newwestpartnershiptrade.ca/the_agreement.asp. 42

Note that the elimination of “unnecessary” differences in standards and regulations can yield a quasi-

cartel in which the provinces agree not to compete with each other in terms of the reduction of regulatory

burdens. This would be inconsistent with the larger goal of the elimination of trade barriers, which is the

dominant focus of the NWPTA; accordingly, that is the dimension of this policy proposal examined here. 43

See http://www.ait-aci.ca/index_en.htm#?1#?1#WebrootPlugIn#?1#?1#PhreshPhish#?1#?1#agtpwd. For

a fuller legal history, see Ian A. Blue, “Free Trade Within Canada: Say Goodbye to Gold Seal,”

MacDonald- Laurier Institute for Public Policy, May 2001, at

http://www.troymedia.com/2011/06/17/canadian-constitution-guarantees-free-trade-between-provinces/.

13

market forces for the allocation of resources (including labor) among economic sectors,

and thus for increases in productivity, employment, and output relative to a case in which

resource allocation is affected more heavily by political pressures. Because Canada is a

common-currency area, the benefits of freer trade would be particularly important: One

analysis estimates that for a common-currency economy, each 1 percent increase in

overall trade (relative to GDP) raises income per capita by at least one-third of a

percent.44

III. Empirical Estimates of GDP and Employment Effects

Among our four prospective policy reforms, a simple econometric analysis is

likely to provide insights on the attendant effects of the reduction in the corporation

income tax rates, the elimination of feed-in and other subsidies for uneconomic

electricity, and participation in the New West Partnership Trade Agreement. The

proposed reduction in the regulatory burden is likely to have effects that are heavily

sectoral in addition to aggregate impacts; moreover, measurement of the regulatory

burden is not straightforward. Accordingly, an approach somewhat cruder---but

unbiased---is more likely to yield useful findings.

For provincial GDP in the context of the first four of the proposed reforms, we

estimate a straightforward model in which GDP is assumed to be driven by:

GDP the previous year (that is, lagged GDP);45

The GDP growth rate;46

Total population;47

Total working-age population;48

The highest provincial corporate income tax rates;49

44

Jeffrey Frankel and Andrew Rose, “An Estimate of the Effect of Common Currencies on Trade and

Income,” Quarterly Journal of Economics, Vol. 117, No. 2 (May 2002), pp. 437-466. 45

Source: Statistics Canada at

http://www5.statcan.gc.ca/cansim/a05?lang=eng&id=3840038&pattern=3840038&searchTypeByValue=1

&p2=35; http://www.statcan.gc.ca/pub/13-016-x/2014001/tab-eng.htm; and

http://www5.statcan.gc.ca/cansim/a26. 46

Ibid. 47

Source: Statistics Canada at

http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=0510001&paSer=&pattern=&stByVal

=1&p1=1&p2=37&tabMode=dataTable&csid= and http://www5.statcan.gc.ca/cansim/a26. 48

Ibid. 49

Source: Canada Revenue Agency at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/rts-eng.html; Sean A.

Cahill, “Corporate Income Tax Rate Database: Canada and the Provinces, 1960-2005,” Agriculture and

Agri-Food Canada, March 2007 at

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0CGMQFjAF&url=http%3

A%2F%2Fwww4.agr.gc.ca%2Fresources%2Fprod%2Fdoc%2Fpol%2Fpub%2Fitdat60-

05%2Fpdf%2Ftax_e.pdf&ei=I-

smU_ekFci80gGM44CoDA&usg=AFQjCNHFORqnIedyx7LEy76ebRTaYmIyXg&sig2=5mbee3knKpCS

xEcwamzTMA&bvm=bv.62922401,d.dmQ; and Deloitte, “Corporate Income Tax Rates, 2005-2012,” at

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&ved=0CGwQFjAG&url=http%3

A%2F%2Fwww.deloitte.com%2Fassets%2FDcom-

14

The highest provincial personal income tax rates;50

Provincial primary energy production;51

An index of provincial electricity costs for commercial and industrial customers;52

A zero-one variable indicating participation in the NWPTA;53

and

Zero-one variables for each of the provinces, intended to capture provincial fixed-

effects differences influencing GDP.

Note that each of these variables can be viewed as exogenous or pre-determined,

so that a single-equation approach is appropriate. Table 2 presents the empirical findings,

using a database of the ten provinces over the period 1985-2012. The provincial fixed-

effects coefficients are not of direct interest here, and so are not reported independently.54

Table 2

GDP Effects of Four Policy Reforms: Dependent Variable Real GDP

(estimated coefficients/t-ratios)

________________________________________________________________________

Variable Estimated Coefficient T-Ratio

________________________________________________________________________

Lagged GDP 0.97 38.42

GDP growth rate 2.23 19.06

Total population 7.37 21.04

Total working-age population 19.47 7.68

Corporate tax rate -2.41 -11.36

Personal tax rate -0.88 -3.43

Energy production 10.87 3.95

Electricity cost index -0.71 -4.22

NWPTA participation 0.53 1.34

Adj. R2 0.997

Canada%2FLocal%2520Assets%2FDocuments%2FTax%2FEN%2F2010%2Fca_en_tax_2010_CorporateI

ncomeTaxRates_%2520310110.pdf&ei=I-

smU_ekFci80gGM44CoDA&usg=AFQjCNFbYDgqgqiulJLetP3FT8dPhwUwCA&sig2=IusPWNbe00o32

EWaWiW7Fw&bvm=bv.62922401,d.dmQ. 50

Source: KPMG at

http://www.kpmg.com/ca/en/issuesandinsights/articlespublications/pages/taxratespersonal.aspx; and

Canada Revenue Agency at http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html and http://www.cra-

arc.gc.ca/formspubs/t1gnrl/llyrs-eng.html, various pages. 51

Thousand of cubic meters equivalent. Source: Statistics Canada at

http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=1260001&pattern=131-0002%2C129-

0001%2C129-0002%2C129-0003%2C129-0004%2C135-0001%2C135-0002%2C128-0012%2C127-

0002%2C134-0001%2C128-0013%2C128-0005%2C127-0003%2C126-0001%2C134-0002%2C128-

0014%2C128-0006%2C134-0003%2C133-0001%2C134-0004%2C133-0002%2C128-0016%2C133-

0003%2C128-0017%2C133-0004%2C128-0018%2C133-0005%2C131-

0001&tabMode=dataTable&srchLan=-1&p1=-1&p2=-1; and http://www5.statcan.gc.ca/cansim/a26. July

data for each year used in dataset. 52

Source: Statistics Canada at

http://www5.statcan.gc.ca/cansim/a05?searchTypeByValue=1&lang=eng&id=3290073&pattern=3290073.

Average index for selling prices under- and over “5000kW”. Note: This should be 5000 kWh. 53

Source: http://www.newwestpartnershiptrade.ca/the_agreement.asp. 54

Those estimated coefficients are available from the author upon request.

15

________________________________________________________________________

Source: Author computations.

GDP is measured in billions of year 2012 dollars. Lagged GDP is an obvious

driver of GDP in the current year; a $1 billion increase in GDP in the previous year is

predicted to increase current-year GDP by about $970 million, other factors held

constant. An increase in the GDP growth rate---a measure of macroeconomic conditions-

--of 1 percent is predicted to increase GDP in the average province by about $2.2 billion.

Since lagged GDP and the GDP growth rate should explain current-year GDP fully, this

identity allows us to examine the effects of the proposed reforms in isolation. An

increase of 1000 in total population is predicted to increase GDP by about $7.4 billion,

other factors---including the working-age population---held constant. An increase in the

working-age population (ages 15-64) of 1000 is predicted to increase GDP by about

$19.5 billion. An increase in the corporation tax rate of 1 percentage point is predicted to

reduce provincial GDP by about $2.4 billion. For the personal income tax, an increase of

1 percentage point is predicted to reduce GDP by about $880 million. An increase in

primary energy production of 1000 cubic meters-equivalent is predicted to increase GDP

by about $10.9 billion. A marginal increase in the electricity cost index relative to the

national average (2009=100.0) is predicted to reduce provincial GDP by about $710

million. Finally, participation in the NWPTA is predicted to increase provincial GDP by

about $530 million, but the effect is not statistically significant at a 5 percent significance

(95 percent “confidence”) level.

For total employment, we use the same model with employment as the dependent

variable and GDP as an explanatory variable.55

GDP is included as an explanatory

variable because it is GDP---production---that yields the demand for labor. Employment

was not included in the GDP equation discussed above because GDP is not derived from

employment.56

Table 3 presents these findings.

Table 3

Employment Effects of Four Policy Reforms: Dependent Variable Total Employment

(estimated coefficients/t-ratios)

________________________________________________________________________

Variable Estimated Coefficient T-Ratio

________________________________________________________________________

GDP 394.12 3.94

GDP growth rate 1738.38 2.83

55

Source: Statistics Canada at

http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=2810024&paSer=&pattern=&stByVal

=1&p1=1&p2=37&tabMode=dataTable&csid=. Data available only for 2001-2012; employment data are

full-time equivalent. This employment model is a bit rough, in that we would expect some substantial

collinearity among the explanatory variables given the findings reported in Table 2. Since there are 120

province-year panel observations, this does not seem to be an important problem. 56

In other words, a perception that productive activity would be profitable increases the demand for inputs,

including labor. No one first “demands” labor and then decides to produce something with it.

16

Total population 667.55 3.74

Total working-age population 934.66 14.17

Corporate tax rate -3992.22 -4.82

Personal tax rate - 38.77 -0.53

Energy production 1381.07 2.99

Electricity cost index -179.26 -2.77

NWPTA participation 198.88 1.88

Adj. R2 0.737

________________________________________________________________________

Source: Author computations.

An increase in provincial GDP of $1 billion is predicted to increase full-time

equivalent employment by about 394 workers for the average province. An increase in

the GDP growth rate of 1 percent would increase employment by about 1738 workers.

An increase of 1000 in total population has the effect of increasing employment by about

668, while an increase in the working age population increases employment by about

935.57

An increase of 1 percentage point in the corporation income tax is predicted to

reduce employment by about 3992 persons.

The effect of an increase in the personal income tax is small and does not differ

from zero as a matter of statistical significance. However, as discussed above, that is the

estimated direct effect. There also are the indirect effects on employment through the

estimated increases in GDP and the reduction in the excess burden of the tax system

attendant upon the reduction in marginal tax rates. From Table 2, a reduction of 1

percentage point in personal income tax rates yields an increase in GDP of $880 million.

Because of the Ontario surtaxes, a 10 percent cut in the personal income tax is equivalent

to a reduction of about 2 percentage points.58

Accordingly, it is reasonable to conclude

that the GDP effect would be about $1.8 billion, with an employment effect of about 700.

The second indirect effect is the increase in GDP attendant upon the decrease in the

excess burden of the tax system, which we assume here to be 100 percent, about half of

the effect estimated by Dahlby.59

For this hypothetical reduction in the income tax of 10

57

Obviously, employment and the working-age population are likely to be determined simultaneously in a

sensible economic model. We ignore this complication here. 58

See http://www.taxtips.ca/taxrates/on.htm; KPMG at

http://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/PersonalTaxRates/federal-and-

provincial-income-tax-rates-and-brackets-and-surtaxes-in-2014.pdf; and

http://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/PersonalTaxRates/combined-top-

marginal-tax-rates-for-individuals-2014-v3.pdf. See also John Clinkard, “Ontario Moves Ahead in Tax

Rate Race---Pushes Quebec Into Third Place,” June 29, 2012, at

http://www.journalofcommerce.com/article/id50844/--ontario-moves-ahead-in-tax-rate-race-mdash-pushes-

quebec-into-third-place. Federal marginal tax rates are 15 percent, 22 percent, 26 percent, and 29 percent. 59

See Bev Dahlby, “Reforming the Tax Mix In Canada,” University of Calgary School of Public Policy

Research Papers, Vol. 5, Issue 14 (April 2012), at 8 and 10, at

http://webapps2.ucalgary.ca/~sppweb/sites/default/files/research/bev-dahlby-012-3.pdf. The marginal cost

of funds is “the welfare loss caused by the tax-induced reallocation of resources when a government raises

an additional dollar of tax revenue through a tax rate increase.” That is the excess burden of the tax.

17

percent---about $2.7 billion in revenue as a first approximation---GDP would rise (that is,

the excess burden of the tax system would decline) by $2.7 billion, with an additional

employment increase of about 1000. The total employment effect is about 1700.

An increase in primary energy production of 1000 cubic meters-equivalent is

predicted to increase employment by about 1381 jobs. A marginal increase in the

electricity cost index relative to the national average (2009=100.0) is predicted to reduce

provincial employment by about 179 jobs. Finally, participation in the NWPTA is

predicted to increase provincial employment by about 199, but the coefficient is not

statistically significant at a 5 percent significance level; but it is significant at a 10

percent significance level.

With respect to the regulatory burden, the 2013 Fraser Institute rankings of

economic freedom separate out three dimensions of regulation as components, for

provincial and municipal governments combined.60

In the Fraser Institute analysis,

average per capita GDP in the quartile averaging a ranking of 6.21 is $45,954 in 2011

Canadian dollars.61

For the quartile with an average rating of 5.38, average per capita

income is $44,199, for a difference of about $1755 per capita. Since the Ontario ranking

is 5.0 (rather than 5.38), it is reasonable to assume a difference between Alberta and

Ontario of about $2000 per capita as a result of the greater Ontario regulatory burden.

With a population of 13.5 million, this implies a GDP increase of $27 billion; from Table

3, this would yield an employment benefit of about 10,600.

IV. Findings for Ontario and Conclusions

Table 4 summarizes the empirical findings and applies them to the proposed

Ontario reforms.

Table 4

Proposed Reforms: Marginal and Total Ontario Effects

________________________________________________________________________

Proposed Reform Marginal Effect Ontario Total Effect

GDP/Empl GDP/Empl

________________________________________________________________________

Corp income tax cut $2.4 billion/3992 $8.4 billion/13972

Eliminate renew elec subsidies $710 million/179 $20.0 billion/5048

Participation in NWPTA na/199 na/199

Reduced regulatory burden $2000 per capita/na $27 billion/10600

________________________________________________________________________

Notes: Assumed cut in the Ontario corporation income tax is from 11.5 percent to 8

percent. The Canada electricity cost index is 132.7; for Ontario it is 160.9. Assumed

population for Ontario is 13.5 million.

60

See Stansel and McMahon, fn. 1 supra., at tab T2.2 of the data spreadsheet. 61

Ibid. at tab F1.4.

18

na: not statistically significant, not estimated, or not applicable.

The economic benefits of the proposed reforms are substantial. The proposed

reduction in the corporation income tax would increase annual Ontario GDP by about

$8.4 billion, and full-time equivalent employment by about 14,000. A reduction in feed-

in tariffs and other subsidies for uneconomic power that would reduce the Ontario power

cost index to the average for Canada as a whole would increase provincial GDP by $20

billion annually, and employment by about 5000. The analysis does not find important

GDP or aggregate employment effects from participation in the NWPTA; this may be the

case because relatively free trade with the U.S. constrains the degree to which provinces

are able to engage in overt and hidden protectionism. There can be little doubt that

participation in the NWPTA would improve labor mobility and reduce economic

rigidities. Finally, it is clear that the regulatory burden is a very large somewhat-hidden

tax on the Ontario economy; a regulatory reform that were to reduce the Ontario

regulatory burden by adopting the best practices of leading provinces in Canada would

increase GDP by $27 billion and total employment by about 10,600.

It is unlikely that overlap (or “double-counting”) issues are important in this

analysis, as the various policy proposals are more-or-less self-contained.62

These

economic benefits of the proposed reforms are substantial, and the rationales offered in

defense of the status quo are dubious. Policymakers should address these reforms in a

serious fashion.

62

See Appendix B of the Fraser Institute report, 2012, supra., fn. 1 for the definitions underlying the

analysis of regulatory burden.