Public Burdens and Corporate Behavior

Author Name KOBAYASHI Yohei  (Consulting Fellow, RIETI) /KUME Koichi  (Nagoya University of Commerce and Business) /OIKAWA Keita  (Consulting Fellow, RIETI) /SONE Tetsuro  (Consulting Fellow, RIETI)
Creation Date/NO. April 2012 12-J-010
Research Project Policy Mix for Fiscal Consolidation Without Harming Japan's Economic Recovery
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Striking a balance between economic growth and public burdens, such as taxes and social insurance contributions, is an urgent issue especially in Japan as it is facing rapid population aging. However, existing research regarding public burdens on corporations mainly focuses on the incidence of employer contributions. In this paper, we analyze the various effects of public burdens on corporate behavior with due consideration to the difference between social insurance contributions and corporate taxes, capital stock adjustments, and employment adjustments (regular and non-regular employees).

Empirical results can be summarized as follows: (1) Corporations handle the increase of public burdens in a variety of ways, not only wage reduction. (2) The changes in social insurance contributions have a large influence on the wages and employment of regular workers. On the other hand, corporate taxes have an impact on investment and research & development (R&D). (3) There exist differences in employment adjustment between part-time, regular, and dispatched workers. (4) Corporations tend to deal with the changes in public burdens by reducing their own profits in the short run. In the medium run, however, they tend to cut employment, curb investment, or raise prices.

These results show that analyzing only the incidence of employer contributions is not sufficient, and we also need to consider the various aspects of public burdens and adjustment costs to corporations.