Bunching of Small Businesses at the Value-Added Tax Threshold in Japan : Lessons for the 2019 Tax Hike

ショウヒゼイ　ニ　オケル　イキチ　ト　ショウキボ　キギョウ　ノ　シュウセキ　2019ネン　ゾウゼイ　ヘノ　テンボウ

Ichikawa, Tsubasa

アルドチュルワン, メナカ

Arudchelvan, Menaka

恩地, 一樹

Onji, Kazuki

集積推計法

租税回避

Value-added tax

Bunching estimator

Tax avoidance

We examine the behavior of small firms near the exemption threshold under Japan’s value-added tax (VAT). We employ Teikoku Data Bank’s large-scale firm database and find visible bunching of firms just below the threshold of 10 million yen. To better understand the motive for bunching, we utilize the 2014 VAT hike as a quasi-experiment, since it increased the financial benefit of VAT exemption. Despite the increased financial incentive, the relative bunching mass remains unchanged, suggesting that the cost of complying with tax regulations motivates the bunching behavior. We also consider whether those bunching firms make real adjustments or conduct tax avoidance. We find indirect evidence favoring the tax-avoidance hypothesis. Our estimates suggest that the VAT threshold distorts the behavior of 57,000 firms, resulting in lost tax collection of 17 billion yen per annum. With Japan facing another round of VAT hike in October 2019, our research provides additional insights to inform the forthcoming policy change.

アルドチュルワン, メナカ

恩地, 一樹