IMF Staff Country Reports

This Selected Issues paper proposes two new drivers of corporate cash holdings and tests them using firm-level data in Japan. In Japan, private savings have shifted from households to the corporate sector. The first driver is the rising share of intangible capital. The second contributing factor is declining corporate tax rates. Empirical results confirm that more intangible capital and lower corporate tax rates contribute to corporate cash holdings, with the tax cuts more relevant for public firms. In terms of magnitude, the rising intangible capital in Japan can explain about a quarter of the increase of cash holdings among public firms, and about 30 percent of the increase of cash holdings among private firms. The decreasing corporate tax rates can explain about 4 percent of the increase in cash holdings among public firms. The effect of tax cuts is much weaker among private firms due to various subsidies and exemptions for subject matter experts.