Did Social Security Contributions Affect Corporate Investment Behavior?

Author Name KOBAYASHI Yohei (Consulting Fellow, RIETI) / NAKATA Daigo (Research Associate, RIETI)
Creation Date/NO. February 2016 16-J-007
Research Project Social Security System to Revive Economic Vitality and Improve the Quality of Life
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Although the increase in social security burden is mentioned as a factor for deterring corporate investment and accelerating the hollowing out of Japanese industry, empirical evidence is scarce. This paper empirically examines whether social security contributions affect corporate investment behavior, using firm-level microdata matched with social security insurance data. Our empirical results are summarized as follows. Social security contributions: (1) have a statistically significant negative impact on capital investment; (2) don't affect research and development; and (3) don't influence the corporate decision of starting overseas operation, however, they do affect the foreign direct investment of companies which have already conducted overseas business.