University of Calgary

Tax Elasticity Estimates for Capital STocks in Canada


Jean-Francois Wen
Yilmaz, Fatih


We use aggregate panel data for the Canadian provinces to estimate the long-run user cost elasticity (UCE) of capital. The estimates exploit three sources of variation in tax policy: across provinces, industries, and years. The UCE is estimated to be between −0.4 and −1.3 for machinery and equipment; estimates for non-residential construction are statistically not different from zero. We also provide semi-elasticitiesof capital with respect to marginal effective tax rates (METR).
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