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Tax Law Asymmetries and Income Shifting: Evidence from Japanese Capital Keiretsu

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Author Info

  • Kazuki Onji

    (Australian National University)

  • David Vera

    (Kent State University)

Abstract

While the asymmetric treatment of positive and negative income creates clear tax incentives to shift income among a group of closely related corporations, attempts to document the impact of such behavior on economic outcomes are relatively sparse. We aim to provide evidence on tax-motivated transfers from a large dataset of Japanese corporate groups. Using company level data on 33,340 subsidiary time pairs from 1988, 1990, and 1992, we consider testable implications of income shifting in a theoretical model tailored to the Japanese institution of the early 1990s and empirically examine the spread of the profitability distribution, the attrition rate of loss-making subsidiaries, and the propensity to report zero profit. The findings suggest that income shifting was pervasive when Japan had not adopted a formal allowance for group-level tax. The result underscores the importance of accounting for the inter-relatedness of companies, in designing a corporate income tax.

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Bibliographic Info

Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 10 (2010)
Issue (Month): 1 ()
Pages: 4
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:4

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Keywords: tax avoidance; business group; corporate income tax;

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References

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  1. Philippa Dee, 2005. "East Asian Economic Integration and its Impact on Future Growth," Development Economics Working Papers 21988, East Asian Bureau of Economic Research.
  2. Yusaku Horiuchi, 2007. "Political Institutions and Distributive Politics in Japan: Getting Along with the Opposition," Asia Pacific Economic Papers 363, Australia-Japan Research Centre, Crawford School, Australian National University.
  3. Peter Drysdale & Xinpeng Xu, 2004. "Taiwan'S Role In The Economic Architecture Of East Asia And The Pacific," Trade Working Papers 22865, East Asian Bureau of Economic Research.
  4. Arief Ramayandi, 2006. "Reliability of Structural Shocks Estimates from a Bivariate SVAR Model: The Case of Southeast Asian Countries," Asia Pacific Economic Papers 357, Australia-Japan Research Centre, Crawford School, Australian National University.
  5. Luke Nottage, 2006. "Nothing New in the (North) East? Interpreting the Rhetoric and Reality of Japanese Corporate Governance," Governance Working Papers 21819, East Asian Bureau of Economic Research.
  6. David Vanzetti & Greg McGuire & Prabowo, 2005. "Trade Policy at the Crossroads: The Indonesian Story," Asia Pacific Economic Papers 347, Australia-Japan Research Centre, Crawford School, Australian National University.
  7. Jun Ikeda, 2007. "The Flow of Funds through a Government - A case study on Japan," Asia Pacific Economic Papers 366, Australia-Japan Research Centre, Crawford School, Australian National University.
  8. Sizhong Sun, 2006. "Technical Efficiency and Its Determinants in Gansu, West China," Asia Pacific Economic Papers 355, Australia-Japan Research Centre, Crawford School, Australian National University.
  9. Kazuki Onji, 2008. "The Response of Firms to Eligibility Thresholds: Evidence from the Japanese Value-Added Tax," Asia Pacific Economic Papers 370, Australia-Japan Research Centre, Crawford School, Australian National University.
  10. Aurelia George Mulgan, 2006. "Agriculture and Political Reform in Japan: The Koizumi Legacy," Asia Pacific Economic Papers 360, Australia-Japan Research Centre, Crawford School, Australian National University.
  11. Peter Drysdale & Christopher Findlay, 2006. "Us And Eu Trade Policies And East Asia," Trade Working Papers 21997, East Asian Bureau of Economic Research.
  12. Luke Nottage, 2006. "Nothing new in the (North) East? Interpreting the Rhetoric and Reality of Japanese Corporate Governance," Asia Pacific Economic Papers 359, Australia-Japan Research Centre, Crawford School, Australian National University.
  13. Hideaki Tanaka, 2005. "Fiscal Rules and Targets and Public Expenditure Management: Enthusiasm in the 1990's and its Aftermath," Asia Pacific Economic Papers 346, Australia-Japan Research Centre, Crawford School, Australian National University.
  14. Peter Drysdale & Kejun Jiang & Dominic Meagher, 2007. "China and East Asian Energy : Prospects and Issues," Development Economics Working Papers 21898, East Asian Bureau of Economic Research.
  15. Aurelia George Mulgan, 2006. "Agriculture and Political Reform in Japan : The Koizumi Legacy," Development Economics Working Papers 21811, East Asian Bureau of Economic Research.
  16. Peter Drysdale, 2005. "Regional Cooperation in East Asia and FTA Strategies," Asia Pacific Economic Papers 344, Australia-Japan Research Centre, Crawford School, Australian National University.
  17. Jun Ikeda, 2007. "How Should One Evaluate Fiscal Conditions? A Study Based on the Comparison Between Japan and Australia," Asia Pacific Economic Papers 364, Australia-Japan Research Centre, Crawford School, Australian National University.
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Citations

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Cited by:
  1. Andrew Elek, 2008. "Immunising Future Trade Against Protectionists: Preventing the Emergence of More Sensitive Sectors," Asia Pacific Economic Papers 372, Australia-Japan Research Centre, Crawford School, Australian National University.
  2. Kazukiyo Onishi, 2008. "Can the New Antimonopoly Act change the Japanese Business Community?," Asia Pacific Economic Papers 373, Australia-Japan Research Centre, Crawford School, Australian National University.

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