OTTAWA—Tax cuts are the worst possible economic stimulus with Bank of Canada interest rates heading to zero, and may well have a negative effect on the economy, says a report released today by the Canadian Centre for Policy Alternatives (CCPA).
The report examines how tax cuts will work with close-to-zero central bank rates and deflationary pressures and finds they may well be contractionary—causing GDP to fall— by reinforcing deflationary pressures and thereby increasing real interest rates.