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The Response of Firms to Eligibility Thresholds: Evidence from the Japanese Value-Added Tax

  • Kazuki Onji

It is common to define benefit eligibility for small business policies by restrictions on the fi rm size. This paper investigates the incentives for a large fi rm to masquerade as many small firms by separately incorporating business segments, focusing on the case of the Japanese value-added tax. The paper fi nds that the masquerading was pervasive and took place quickly after the introduction of tax incentives. Tax avoidance caused 3.4 per cent of the overall revenue drain in 1990, thus reducing horizontal equity, but the effi ciency consequence would not have been severe. This study suggests that the masquerading by firms may be commonplace in other settings.

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Paper provided by Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University in its series Asia Pacific Economic Papers with number 370.

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Length: 44 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:csg:ajrcau:370
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