The Impact of Corporate Tax Rate Cuts on Cost Stickiness

Abstract

　In this study, we investigate the impact of a reduction in the corporate tax rate on cost stickiness in Japan. The corporate tax rate in Japan had been gradually reduced since the early years. Changes in the corporate tax rate have a direct impact on the corporate tax burden of firms and provide incentives for firms to transfer income during the period when the lower tax rate is applied. Therefore, we expect to observe stronger cost stickiness in the period when the higher tax rate is applied before the corporate tax rate is reduced. We analyze data in Japanese firms from 2008 to 2023, which includes 4 tax reductions. The results show that a reduction in the corporate tax rate affects cost stickiness. Moreover, the impact of the reduction in the corporate tax rate is found for firms with higher tax burden.