AN EMPIRICAL STUDY ON THE EFFECT OF CORPORATE TAX RATES ON THE OUT-MIGRATION OF DOMESTIC COMPANIES

Abstract

 The location of firms that contributes to the local economy and provide employment is important for the sustainable development of urban areas. While Japanese business community has been claiming that higher corporate tax rates accelerate corporate out-migrations, there are studies that question the validity of such claims. However, these studies do not distinguish between "cross-border expansion" and "cross-border relocation" of business. In this study, we examined the hypothesis that higher corporate tax rates drive the "cross-border relocation" of business by interviewing business persons and conducting a questionnaire survey. The results revealed that corporate tax rates are rarely the main reason for relocating firms overseas, and are less important than other factors such as "capturing overseas demand" and "responding to local needs in foreign countries". It is also suggested that stimulating domestic demand may be more effective as a measure against the out-migration of businesses in urban areas.