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The response of firms to eligibility thresholds: Evidence from the Japanese value-added tax

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  • Onji, Kazuki

Abstract

It is common to define benefit eligibility for small business policies by restrictions on the firm size. This paper documents the effects of the value-added tax (VAT) threshold in Japan, focusing on the incentives for a large firm to "masquerade" as many small firms by separately incorporating business segments. A comparison of the corporate size distributions before and after the VAT introduction of 1989 shows a clustering of corporations just below the threshold--a pattern that is attributable to the behavioral responses. To rule out the confounding influences of the changes in the company attributes over the years, we applied a semiparametric density decomposition technique developed by DiNardo, Fortin, and Lemieux (DiNardo J., Fortin N.M., Lemieux T., Labor market institutions and the distribution of wages, 1973-1992: a semiparametric approach. Econometrica 1996; 64; 1001-1044). This study suggests that the masquerading behavior by firms may be commonplace in other settings.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 93 (2009)
Issue (Month): 5-6 (June)
Pages: 766-775
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Handle: RePEc:eee:pubeco:v:93:y:2009:i:5-6:p:766-775

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Web page: http://www.elsevier.com/locate/inca/505578

For corrections or technical questions regarding this item, or to correct its listing, contact: (Jeroen Loos).

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Keywords: H32 H25 L22 Tax avoidance Business group Value-added tax Firm size distribution;

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References

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  1. Roberto Torrini & Fabiano Schivardi, 2004. "Threshold effects and firm size: The case of firing costs," 2004 Meeting Papers 445, Society for Economic Dynamics.
  2. Stephens, Melvin Jr & Ward-Batts, Jennifer, 2004. "The impact of separate taxation on the intra-household allocation of assets: evidence from the UK," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1989-2007, August.
  3. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1990. "Effects of the Tax Reform Act of 1986 on Corporate Financial Policy and Organizational Form," NBER Working Papers 3222, National Bureau of Economic Research, Inc.
  4. James R. Hines, Jr. & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Kazuki Onji & David Vera, 2010. "Tax Law Asymmetries and Income Shifting: Evidence from Japanese Capital Keiretsu," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 10(1), pages 4.
  2. Paul E. Carrillo & M. Shahe Emran & Anita Rivadeneira, 2011. "Do Cheaters Bunch Together? Profit Taxes, Withholding Rates and Tax Evasion," Working Papers 2011-03, The George Washington University, Institute for International Economic Policy.
  3. Taizo Motonishi, 2009. "Are the East Asian Currencies still Misaligned? An analysis based on absolute PPP-Income relationship using panel data," Asia Pacific Economic Papers 381, Australia-Japan Research Centre, Crawford School, Australian National University.
  4. 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.
  5. Go Ito, 2010. "Beyond 'Asian Values': Rationales For Australian-Japan Cooperation In Asian Regionalism," Asia Pacific Economic Papers 389, Australia-Japan Research Centre, Crawford School, Australian National University.
  6. Yusaku Horichi & Jun Saito, 2009. "Rain, Elections and Money: The Impact of Voter Turnout on Distributive Policy Outcomes in Japan," Asia Pacific Economic Papers 379, Australia-Japan Research Centre, Crawford School, Australian National University.
  7. 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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