What Types of Firms Relocate Their Headquarters and Why? Analyzing the effects of the dual corporate tax system

Author Name NAKATA Kazuko (Setsunan University)
Creation Date/NO. October 2016 16-J-055
Research Project Theoretical and Empirical Analyses on Incidences of Corporate Income Taxation
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In 2004, the Japanese government introduced the dual corporate tax system, which allows prefectural governments to set their own corporate income tax rates. The purpose of this paper is to examine the effects of this tax reform on firms' location decision based on a discrete choice model, which investigates what types of firms relocate their headquarters across prefectures and whether their relocation decision was affected by the tax reform. The analysis indicates that the decision to relocate is negatively associated with firms' age and positively associated with their amount of assets, number of employees, debt-to-assets ratio, real estate rent, and payroll. Moreover, firms with a parent company, a foreign subsidiary, fewer business establishments, less capital stock, and fewer employees at the headquarters are more likely to relocate. After the tax reform, firms tend to avoid relocating to prefectures with a high corporate tax rate.