Did Social Security Contributions Affect Corporate Investment Behavior?

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.