Taxes and the Choice of Organizational Form in Late Nineteenth Century Japan

Kazuki Onji and John Tang

The Journal of Economic History, 2017, vol. 77, issue 2, 440-472

Abstract: How do changes to taxation policy affect the organizational choices of firms? Using historical firm data constructed from Japanese corporate genealogies, we examine the short-run impact of introducing a personal income tax (PIT) in 1887 on tax-motivated incorporation. Between 1880 and 1892, we find that the introduction of PIT increased the share of incorporated firms by more than 3 percentage points, indicating firms chose their organizational structure to avoid new taxation. Furthermore, our results suggest that a corporate income tax may have acted as a backstop to maintain revenue collected through PIT.

Date: 2017
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Working Paper: A nation without a corporate income tax: Evidence from nineteenth century Japan (2015)
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