Technical Report A nation without a corporate income tax : Evidence from nineteenth century Japan

Tang, John P.  ,  Onji, Kazuki

15-12pp.1 - 23 , 2015-05 , Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
This study provides evidence on tax distortion to organizational choices of firm using historical data. We utilize the 1887 introduction of a personal income tax (PIT) in Japan as a quasi-experiment to examine tax-motivated incorporation. We circumvent the data limitation in the 19th century by drawing on a firm-level dataset constructed from genealogies of Japanese corporations. The sample is 3,203 firm-year observations spanning 1880-1892. We find that the introduction of PIT a affected the adoption of simpler types of corporations and increased the corporate share of establishments by about 3 percentage points. The evidence indicates the role of a corporate income tax as a backstop to maintain revenue performance of PIT.

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