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 large
9
---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 states 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 Ontarios 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 Agreement
41
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 regulations
42
; 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. R
2
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. R
2
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.