Abstract
ABSTRACT Local business tax reform in Japan from 2004 through 2015 provides opportunity to evaluate the effects on cyclical variability of local taxes through movement from a single factor income-based tax to a three-factor base consisting of profits, capital and value added. The tax rates applied individually to each of the three factors have been reweighted periodically beginning in 2004 and most recently in 2015. Empirical tests using data from the Japanese Ministry of Finance indicate that as a result of the reweighting of the three-factors the short-run elasticity of local business tax revenues may be approaching that of a pure value added tax base. Models of hypothetical tax revenues under the periodically reweighted three-factor tax bases show the burden of the local business tax being shifted away from capital toward labor, raising the concern that possible adverse factor substitution may result. Keywords Variability of tax revenues, elasticity of tax revenues, value added tax, local tax receipts, enterprise tax
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