The Impact of Corporate Tax Reform since the 2000s―An Analysis Using Firm-Specific Forward-Looking Effective Tax Rates

Many developed countries have lowered their statutory corporate tax rate, along with the expansion of the tax base. In examining the future of corporate taxation, it is important to examine the impact on corporations of the reductions in statutory corporate tax rate and the expansion of the tax base that have been implemented to date. Corporate tax reform in Japan has been implemented in a unique way, by expanding the size-based business taxation while lowering the statutory tax rate, and it is important from both academic and policy perspectives to examine the implications of these reforms.

In this paper, we analyze the impact of the corporate tax reform in Japan since the 2000s by using firm-level financial data from 2006 to 2018. In addition, we briefly analyzed the impact of the change in the forward-looking average effective tax rate on corporate behavior. The corporate tax reform since the 2000s has led to a reduction in the overall effective tax rates and a narrowing of the gap in effective tax rates among firms. This also suggests that the reform had a positive impact on employment and investment; however, the effect may have been limited for large companies, which are subject to the size-based business taxation.