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Business and Economics > Corporate Taxation

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Cover Selected Issues Papers
Drivers of Corporate Cash Holdings in Japan: Japan
Seho Kim
,
Pablo Lopez Murphy
, and
Rui Xu
In Japan, corporate savings have risen since 2000 in line with profits. A large share of the additional savings was kept as cash holdings (i.e., cash and short-term investments) rather than used for investment. Building on a rich literature, this paper identifies two additional drivers of corporate cash holdings using financial data of public and private Japanese firms. First, a higher share of intangible capital is associated with more cash holdings. This indicates the presence of financial frictions as intangible capital is not easily collateralizable. Such financial friction could be alleviated by shifting towards cash flow-based lending that is prevalent in the United States (US). Second, corporate tax cuts are associated with more cash holdings while having no significant effect on investment. Given the significant fiscal cost, the efficiency of corporate tax cuts should be re-evaluated.
Keywords:
Corporate cash holdings; Investment; intangible assets; financial frictions; tax cuts; Japan; cash holding; corporate tax tax cut; drivers of Corporate Cash Holdings; firm sample; short-term investment; Intangible capital; Corporate income tax; Effective tax rate; Tax allowances; Global
Cover IMF Working Papers
Corporate Tax Reform: From Income to Cash Flow Taxes
Benjamin Carton
,
Emilio Fernández Corugedo
, and
Mr. Benjamin L Hunt
This paper uses a multi-region, forward-looking, DSGE model to estimate the macroeconomic impact of a tax reform that replaces a corporate income tax (CIT) with a destination-based cash-flow tax (DBCFT). Two key channels are at play. The first channel is the shift from an income tax to a cash-flow tax. This channel induces the corporate sector to invest more, boosting long-run potential output, GDP and consumption, but crowding out consumption in the short run as households save to build up the capital stock. The second channel is the shift from a taxable base that comprises domestic and foreign revenues, to one where only domestic revenues enter. This leads to an appreciation of the currency to offset the competitiveness boost afforded by the tax and maintain domestic investment-saving equilibrium. The paper demonstrates that spillover effects from the tax reform are positive in the long run as other countries’ exports benefit from additional investment in the country undertaking the reform and other countries’ domestic demand benefits from improved terms of trade. The paper also shows that there are substantial benefits when all countries undertake the reform. Finally, the paper demonstrates that in the presence of financial frictions, corporate debt declines under the tax reform as firms are no longer able to deduct interest expenses from their profits. In this case, the tax shifting results in an increase in the corporate risk premia, a near-term decline in output, and a smaller long-run increase in GDP.
Keywords:
WP; capital stock; exchange rate; export price; income tax; tax policy; business taxation; corporate leverage; dynamic stochastic general equilibrium models; macroeconomic interdependence; CIT reform; cash flow; cost of capital; open economy; DBCFT result; distortionary tax; tax reform experiment; return to capital; rate of return; shadow price; Corporate income tax; Corporate taxes; Financial frictions; Value-added tax; Cash-flow tax; Global
Cover Fiscal Monitor, April 2016
Fiscal Monitor, April 2016
Acting Now, Acting Together
International Monetary Fund. Fiscal Affairs Dept.

Abstract

The global economy remains fragile at this time. While the recovery in advanced economies is softening, many emerging market and developing economies have experienced a significant economic slowdown, and some large countries show signs of distress. Global risk aversion has risen, and commodity prices have continued to fall since the April 2015 Fiscal Monitor. The weaker outlook and concerns about the ability of policymakers to provide an adequate and swift policy response have amplified downward risks and clouded global prospects. According to this issue of the Fiscal Monitor, the challenging environment calls for a comprehensive policy response to boost growth and reduce vulnerabilities. In particular, it is critical to identify policies that could lift productivity growth by promoting innovation. Fiscal policy can play an important role in stimulating innovation through its effects on research and development, entrepreneurship, and technology transfer.

Keywords:
FM; def; country abbreviation; statistics manual; commodity exporter; potential GDP; middle-income economy; Fiscal stance; Emerging and frontier financial markets; Macroeconomic and fiscal forecasts; Global; Africa; Middle East; North Africa; Europe; Tax incentives; Asia and Pacific; fiscal policy; tax treatment; imputed interest; rate of return; Fiscal risks
Cover IMF Staff Country Reports
Canada: Selected Issues
International Monetary Fund
This Selected Issues paper for Canada presents comprehensive and broad-based analysis of the role of domestic and external shocks. Canada’s economic history illustrates the important role played by external as well as domestic macroeconomic disturbances. Canada’s economy slowed in 2001 because of the global slowdown, although by less than in many other countries. In 2003, the recovery has been interrupted by a series of shocks that moderated growth. Fluctuations in Canadian real GDP are explained by external and domestic cycles.
Keywords:
ISCR; CR; bank; tax rate; bank asset; merger guideline; Phillips curve; soundness indicator; IO method; banking system in Canada; demand shock; bank competition; Budget planning and preparation; Macroeconomic and fiscal forecasts; Personal income tax; Global; Europe; Australia and New Zealand; Caribbean