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Tax Avoidance or Compliance Costs Avoidance? Evidence from VAT Reforms in Japan

Author

Listed:
  • Takafumi Kawakubo

    (London School of Economics and Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan)

  • Takafumi Suzuki

    (Lecturer, Aichi Shukutoku University)

  • Kohei Asao

    (Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan)

Abstract

This paper disentangles the motivations behind how enterprises respond to sizedependent tax regulations by exploiting the value-added tax (VAT) reforms in Japan. In Japan, both tax threshold and tax rate have been changed over the past three decades since the introduction of VAT. We build on the model of Harju et al. (2019) to incorporate various tax reforms and derive empirically testable implications. By using a novel panel of Japanese Census of Manufacture covering the period over VAT introduction and reforms, we conducted bunching estimation. The local estimates imply that the observed output response by enterprises is mainly caused by compliance costs rather than tax rates for small enterprises in Japan. The results suggest that easing compliance costs could be more effective support for small enterprises rather than reducing tax rate/burden.

Suggested Citation

  • Takafumi Kawakubo & Takafumi Suzuki & Kohei Asao, 2022. "Tax Avoidance or Compliance Costs Avoidance? Evidence from VAT Reforms in Japan," Discussion papers ron346, Policy Research Institute, Ministry of Finance Japan.
    • Handle: RePEc:mof:wpaper:ron346
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    File URL: https://www.mof.go.jp/pri/research/discussion_paper/ron346.pdf
    File Function: First version, 2016
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    More about this item

    Keywords

    compliance costs; value-added tax; sole proprietor; firm behavior;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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