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Taxes and Corporate Investment in Japanese Manufacturing

In: Productivity Growth in Japan and the United States

  • Fumio Hayashi

This paper examines the impact of taxes on the incentive to invest for the Japanese manufacturing sector in the postwar period. The idyosyricratic feature of the Japanese corporation tax system as compared to the U.S. is the prevelence of tax-free reserves and the tax deductibility of a part of taxes paid by corporations in the previous year. Our formula for the tax-adjusted Q and the cost of capital incorporates this. The main conclusions areas follows. While the postulated negative relation with the cost of capital cannot be found, investment in Japanese manufacturing shows until 1974 a strong association with the tax-adjusted Q. Since the change in stock prices, not taxes, is the primary source of changes in Q, the profitability of capitalis the major determinant of investment.

(This abstract was borrowed from another version of this item.)

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This chapter was published in:
  • Charles R. Hulten, 1991. "Productivity Growth in Japan and the United States," NBER Books, National Bureau of Economic Research, Inc, number hult91-1, July.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 8451.
    Handle: RePEc:nbr:nberch:8451
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. 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.
    2. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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