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

Kazuki Onji

Finance Working Papers from East Asian Bureau of Economic Research

Abstract: 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.

Keywords: Tax avoidance; Business group; Value-added tax; Firm size distribution (search for similar items in EconPapers)
JEL-codes: H25 H32 L22 (search for similar items in EconPapers)
Date: 2008-01
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Related works:
Journal Article: The response of firms to eligibility thresholds: Evidence from the Japanese value-added tax (2009) Downloads
Working Paper: The Response of Firms to Eligibility Thresholds: Evidence from the Japanese Value-Added Tax (2008) Downloads
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