The Economic Costs of Capital Gains Taxes

Capital gains taxes, like all forms of taxation, raise revenues for the government but also impose
economic costs. Unfortunately, the cost of capital gains taxes is not limited to the amount of
tax collected. Capital gains taxes impose additional costs on the economy because they reduce
returns on investment and, thereby, cause individuals and businesses to alter their behaviour. As a result, capital gains taxes have a substantial impact on the reallocation of capital, the stock
of capital, and the level of entrepreneurship in Canada.