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

  • Kazuki Onji (a1) and John P. Tang (a2)
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.

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Thanks to Paul Rhode, William Collins, Li Liu, two anonymous referees, and seminar participants at ANU(RSE), AJRC, UCL(CORE), NTA 2015 for comments and suggestions that significantly improved this paper. Onji has received funding for this research from the GSE, Osaka University and MEXT/JSPS KAKENHI Grant Number 15K03510. Tang has received funding for this research from the Australian Research Council (DE120101426). The authors would like to thank Jun Imaki and Koji Asano for helpful research assistance and translation support. A previous version of this paper was circulated under the title “A nation without a corporate income tax: Evidence from nineteenth century Japan.” All remaining errors are ours.

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This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

Julie B. Cullen , H. Gordon Roger . “Taxes and Entrepreneurial Risk-Taking: Theory and Evidence for the US”. Journal of Public Economics 91, no. 7 (2007): 1479–505.

Ruud de Mooij , and Nicodème Gaetan . “Corporate Tax Policy and Incorporation in the EU”. International Tax and Public Finance 15, no. 4 (2008): 478–98.

Mark J. Flannery , W. Hankins Kristine . “Estimating Dynamic Panel Models in Corporate Finance”. Journal of Corporate Finance 19 (2013): 119.

W. Mark Fruin . The Japanese Enterprise System: Comparative Strategies and Cooperative Structures. Oxford: Clarendon Press, 1994.

Austan Goolsbee . “Taxes, Organizational Form, and the Deadweight Loss of the Corporate Income Tax”. Journal of Public Economics 69, no. 1 (1998): 143152.

Roger H. Gordon , and K. MacKie-Mason Jeffrey . “Tax Distortions to the Choice of Organizational Form”. Journal of Public Economics 55, no. 2 (1994): 279306.

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Ruth A. Judson , and L. Owen Ann . “Estimating Dynamic Panel Data Models: A Guide for Macroeconomists”. Economics Letters 65, no. 1 (1999): 915.

Li Liu . “Income Taxation and Business Incorporation: Evidence from the Early Twentieth Century”. National Tax Journal 67, no. 2 (2014): 387418.

Jeffrey K. Mackie-Mason , H. Gordon Roger . “How Much Do Taxes Discourage Incorporation?Journal of Finance 52, no. 2 (1997): 477506.

Tom Nicholas . “The Organization of Enterprise in Japan”. Journal of Economic History 75, no. 2 (2015): 333–63.

David Roodman . “A Note on the Theme of Too Many Instruments”. Oxford Bulletin of Economics and Statistics 71, no. 1 (2009): 135–58.

John P. Tang Railway Expansion and Industrialization: Evidence from Meiji Japan”. Journal of Economic History 74, no. 3 (2014): 863–86.

John P. Tang A Tale of Two SICs: Japanese and American Industrialisation in Historical Perspective”. Australian Economic History Review 56, no. 2 (2016): 174–97.

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The Journal of Economic History
  • ISSN: 0022-0507
  • EISSN: 1471-6372
  • URL: /core/journals/journal-of-economic-history
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Supplementary Materials

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Appendix

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Supplementary Materials

Onji and Tang supplementary material
Onji and Tang supplementary material

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