Policy Documents

The Economic Costs of Capital Gains Taxes

Niels Veldhuis, Keith Godin, and Jason Clemens –
February 1, 2007

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.