Faulty analysis fuels subsidy myths

New study challenges previous research, offers alternative methods for measuring incentives

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CALGARY, Oct. 4, 2011 /PRNewswire/ - In a paper released today by The School of Public Policy, Professors Jack Mintz and Ken McKenzie propose a more accurate method for measuring fossil fuel subsidies in Canada, which shows no net incentive to Alberta or Saskatchewan's energy sector.

The impetus for the authors' research is a report conducted for the International Institute for Sustainable Development (IISD) that has "provided fodder for some recent controversial statements by Canadian politicians."

Mintz and McKenzie are critical of the "tax expenditure approach" used by the IISD and in many other studies on this topic. They argue that this research is not based on a robust underlying economic framework, it fails to account for complex interactions between tax and royalty systems in existing fiscal policy, and it uses a definition of subsidies that was created for a different purpose.

The authors recommend an "economic approach to measuring subsidies" that takes into account a broader range of economic factors, including corporate income taxes, sales and excise taxes on capital purchases and capital-related taxes.

"These principles provide a much better guidance for public policy than erroneously calculating subsidies without a clear, consistent underlying framework for good public policy," they argue.

By applying these principles to an analysis of oil and gas investments in Alberta, Saskatchewan and Newfoundland & Labrador, the authors find that, on aggregate, only investments in Newfoundland & Labrador qualify as being subsidized.

A copy of the paper can be found by going to www.policyschool.ucalgary.ca/publications.

SOURCE University of Calgary - School of Public Policy

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