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Saving And Interest Rates In Canada

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Saving and Interest Rates

The controversy revolving around what triggers high interest rate in Canada has been around for a few years. While some are quick to blame Canadian consumers’ spending habits, others believe that the public spending habits are what provoke the higher interest rate. If you take a glance at the Canadian economic history over the past few decades, Canada has been experiencing high interest rates. Many commentators including high officials of the Bank of Canada blame the Canadian public spending habits for the high interest rates. Should we agree with these commentators? Under the guidance of influential economists like Adam Smith and Alfred Marshall who introduce and explains the magical aspect of supply and demand, we can conclude that the Canadian public spending habits and the government’s tax regulations should take the blame for the high interest rates in Canada.

The Governments of Canada’s spending habits are the reasons for the high interest rates in Canada. Over the past few decades, Canadian governments have been running huge budget deficits. Every time these …show more content…

The provincial and federal governments heavily tax the Canadians’ revenue, interest earned on savings, and dividends in order to raise tax revenues to maintain their governments. Saving is the source of the supply of loanable funds (178); when the interest rates are high, people have higher incentives to save more money because of the high return on their investments and save less when the return on their savings is not very attractive (182). Because of government tax regulations in Canada that tax the returns on investments so heavily, savings become less attractive for Canadians; in consequence, Canadian spending habits increases in areas that do not totally support the overall economic well beings of the nation. (Chapter

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