The Politics in the Canadian Judicial Decision Making Process: Economic Analysis of Tax Litigation


  • Berry F. C. Hsu



The application of economic theories, rightly or wrongly, has a major impact on our lives. Economic reform inevitably leads to political reform. However, it remains unanswered whether economic reform leads to reform in the judicial decision making process. Although there are a number of studies on the economic analysis of taxation, that is, the study of economics and tax policies, there is virtually no literature on the economic analysis of tax cases. The time is ripe for a study of the connection between economic analysis and case law in taxation as Canada approaches the twenty-first century. This article investigates whether the federal courts in Canada have taken economic reality into consideration in making their decisions on tax matters. This is the first attempt to address the issue; although somewhat exploratory and speculative, it provides a starting point. This article first discusses tax scholarship in Canada. Then, the relevance of law and economics is discussed with special emphasis on the use of economic tools to analyse common law cases. From these discussions, the theories of economics are linked to tax cases. Finally, the author analyses trend of applying economic analysis in federal tax cases. This article should serve as a starting point for a future analysis of the cases determined by the Supreme Court of Canada.