TY - JOUR
T1 - The response of firms to eligibility thresholds
T2 - Evidence from the Japanese value-added tax
AU - Onji, Kazuki
PY - 2009/6
Y1 - 2009/6
N2 - It is common to define benefit eligibility for small business policies by restrictions on the firm size. This paper documents the effects of the value-added tax (VAT) threshold in Japan, focusing on the incentives for a large firm to "masquerade" as many small firms by separately incorporating business segments. A comparison of the corporate size distributions before and after the VAT introduction of 1989 shows a clustering of corporations just below the threshold-a pattern that is attributable to the behavioral responses. To rule out the confounding influences of the changes in the company attributes over the years, we applied a semiparametric density decomposition technique developed by DiNardo, Fortin, and Lemieux (DiNardo J., Fortin N.M., Lemieux T., Labor market institutions and the distribution of wages, 1973-1992: a semiparametric approach. Econometrica 1996; 64; 1001-1044). This study suggests that the masquerading behavior by firms may be commonplace in other settings.
AB - It is common to define benefit eligibility for small business policies by restrictions on the firm size. This paper documents the effects of the value-added tax (VAT) threshold in Japan, focusing on the incentives for a large firm to "masquerade" as many small firms by separately incorporating business segments. A comparison of the corporate size distributions before and after the VAT introduction of 1989 shows a clustering of corporations just below the threshold-a pattern that is attributable to the behavioral responses. To rule out the confounding influences of the changes in the company attributes over the years, we applied a semiparametric density decomposition technique developed by DiNardo, Fortin, and Lemieux (DiNardo J., Fortin N.M., Lemieux T., Labor market institutions and the distribution of wages, 1973-1992: a semiparametric approach. Econometrica 1996; 64; 1001-1044). This study suggests that the masquerading behavior by firms may be commonplace in other settings.
KW - Business group
KW - Firm size distribution
KW - H25
KW - H32
KW - L22
KW - Tax avoidance
KW - Value-added tax
UR - http://www.scopus.com/inward/record.url?scp=67349240151&partnerID=8YFLogxK
U2 - 10.1016/j.jpubeco.2008.12.003
DO - 10.1016/j.jpubeco.2008.12.003
M3 - Article
SN - 0047-2727
VL - 93
SP - 766
EP - 775
JO - Journal of Public Economics
JF - Journal of Public Economics
IS - 5-6
ER -