Simulating the Growth Effects of the Corporate Income Tax Rate Cuts in Alberta

Shortly after its election in May 2019, the new Alberta government began fulfilling its promise to reduce the provincial corporate income tax (CIT) rate. The rate cut began in July 2019, when the government dropped the CIT rate from 12 to 11 per cent. The rate is scheduled to decline to 10 per cent on Jan. 1, 2020, followed by further one-percentage-point reductions in 2021 and 2022, bring the Alberta CIT rate down to eight per cent in 2022. This communique uses the authors’ research into the long term impacts of the provincial CIT reductions to project the impact of the tax rate cuts on the Alberta economy. The authors’ econometric model indicates that the series of rate cuts will boost the Alberta economy’s growth rate, and real per capita GDP will be 2.5 per cent higher in 2022 and 6.5 per cent in 2029, with an increase in employment totalling approximately 58,000 in 2022 and 172,000 by 2029. These results are consistent with the projections from a 2012 study by the same authors that also found a CIT rate cut would increase provincial growth rates. That study used a different data set, time period and different methodology, but its findings are consistent with the outcome of the latest research model.