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Investment responses to Japanese tax reforms: A cross-industry comparison

  • Hamaaki, Junya

This paper examines the investment responses to past Japanese tax reforms for individual industries. To identify the tax effect, this paper estimates investment functions by using a covariate of the change in tax-adjusted q caused by tax reform. This method alleviates the measurement error problem and enables the derivation of estimates indicating the valid adjustment cost of investment. Moreover, the findings suggest that firms' investment responded significantly to tax reforms in the 1980s in general. Also, investments of only a few industries responded to those in the late 1990s, implying that the manner of investment response slightly differs among industries.

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File URL: http://www.sciencedirect.com/science/article/B6VF1-4NC38X8-1/2/808bb38f4f83af718882521fe80ea26f
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Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 20 (2008)
Issue (Month): 4 (December)
Pages: 542-562

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Handle: RePEc:eee:japwor:v:20:y:2008:i:4:p:542-562
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505557

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  1. Kevin A. Hassett & R. Glenn Hubbard, 1996. "Tax Policy and Investment," NBER Working Papers 5683, National Bureau of Economic Research, Inc.
  2. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  3. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1995. "Tax Reforms and Investment: A Cross-Country Comparison," NBER Working Papers 5232, National Bureau of Economic Research, Inc.
  4. Cummins, Jason G. & Hassett, Kevin A., 1992. "The Effects of Taxation on Investment: New Evidence from Firm Level Panel Data," National Tax Journal, National Tax Association, vol. 45(3), pages 243-51, September.
  5. Takeo Hoshi & Anil K. Kashyap, 1990. "Evidence on q and investment for Japanese firms," Finance and Economics Discussion Series 136, Board of Governors of the Federal Reserve System (U.S.).
  6. Auerbach, Alan J, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 433-46, August.
  7. Auerbach, Alan J. & Hassett, Kevin, 1991. "Recent U.S. investment behavior and the tax reform act of 1986: A disaggregate view," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 35(1), pages 185-215, January.
  8. Kazuo Ogawa & Kazuyuki Suzuki, 2000. "Uncertainty and Investment: Some Evidence from the Panel Data of Japanese Manufacturing Firms," The Japanese Economic Review, Japanese Economic Association, vol. 51(2), pages 170-192, 06.
  9. Fumio Hayashi & Tohru Inoue, 1990. "The Relation Between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," NBER Working Papers 3326, National Bureau of Economic Research, Inc.
  10. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 1-74.
  11. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
  12. Hassett, Kevin A. & Hubbard, R. Glenn, 2002. "Tax policy and business investment," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 20, pages 1293-1343 Elsevier.
  13. Auerbach, Alan J. & Hassett, Kevin, 1991. "Recent U.S. investment behavior and the tax reform act of 1986: A disaggregate view a rejoinder," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 35(1), pages 221-222, January.
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