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

  • Kazuki Onji

    (Australia–Japan Research Centre, Australian National University)

It is common to defi ne benefi t 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 fi rms 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 fi rms may be commonplace in other settings.

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File URL: http://saber.eaber.org/node/21965
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Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 21965.

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Date of creation: Jan 2008
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Handle: RePEc:eab:financ:21965
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

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