MEASUREMENT OF THE FOREIGN EXCHANGE AND SALES TAX EXTERNALITY ON THE VALUE ADDED OF LABOUR

The purpose of this note is to measure the externality created by the existence of sales taxes and trade distortions when labour is taken away from the rest of the economy for use in the project under examination. This externality is calculated as a proportion of the value added of labour estimated by the gross-of-income-tax wage component of the social opportunity cost of labour. This estimation is made by employing the same general equilibrium model and data base as used to calculate the shadow price of the foreign exchange for Canada.