Taxes and Horizontal Corporate Group (Keiretsu) Affiliation: Empirical Evidence from Japan
PACAP WP 9602
Posted: 10 Dec 1996
Date Written: September 1996
This paper investigates the effect of horizontal corporate group (keiretsu) affiliation on effective tax rates in Japan. After controlling for variables that affect corporate income taxes, we find that keiretsu firms have lower effective tax rates than independent firms. We attribute these findings to political power and the unique corporate governance mechanism of keiretsu groups. Furthermore, horizontal keiretsu groups are able to reduce tax liabilities to such a low level that the influence of taxes on the substitution between debt and non-debt tax shields is insignificant. For independent companies, however, corporate income tax remains an important determinant of the tax substitution effect.
JEL Classification: G32
Suggested Citation: Suggested Citation