Journal on Policy and Complex Systems
firms who pay corporate tax . Paying executive compensation is also added as an additional behavioral rule for firms . The firms ’ decision-making on investment is assumed to be based on demand , and the necessary funds are assumed to be financed from the bank in half and internal funds in half . The upper limit of the number of loans is also changed from one to three as an experimental level to clarify the influence of the mitigation of credit rationing on the positive effect of corporate tax reduction on GDP . The behavioral rules of government are also added to the base model , which are characterized by the inefficiency of government expenditure , as described in the previous section . The inefficiency of government expenditure is changed between 0 % and 100 %, with 10 % intervals .
In this study , the influence of the inclusion of a labor market is also analyzed as one of the experimental levels because it is well known that corporate tax reduction results in reducing unemployment in the real system ( Sakuma , Masujima , Maeda , Fukawa , & Iwamoto , 2011 ), which could contribute the emergence of the positive influence of corporate tax reduction . In the model taking into account the existence of labor market , it is additionally assumed that the firm can decide either to invest in equipment or to employ a new worker depending on the financial merit when it needs to expand the production capacity . In the latter case , the firm puts a help-wanted advertisement in the labor market to employ a new worker . On the other hand , if a firm goes bankrupt , the workers in the firm become out of work , applying for a new job in the labor market , while getting unemployment benefits from the government .
The parameter values changed to analyze the influence of the factors mentioned above on GDP are the followings . For the analysis of the income tax rate , income tax rate is varied between 10 and 30 %, with a 5 % interval , corporate tax rate is assumed to be 20 %, executive compensation is changed between 0 and 0.5 , and the withdrawal ratio is varied between 0 and the maximum value , which is assumed to be 0.2 , 0.5 , or 0.8 . Changing the withdrawal ratio corresponds to altering the levels of the marginal propensity to consume , as given in Equation ( 1 ). For the analysis of corporate tax reduction , the corporate tax rate is changed between 10 % and 30 %, with a 5 % interval , the income tax rate is assumed to be 20 %, executive compensation is changed to 0.75 , 0.85 , and 0.95 , and the withdrawal ratio is changed between 0 and 0.5 . The inefficiency of government expenditure is varied between 0 % and 100 %, with a 10 % interval for both analyses .
Thus , the factors relating to the model structure changed in the latter experiment are the inefficiency of government expenditure , the inclusion of executive compensation , the use of internal funds for investment , the upper limit of the number of loans ( i . e ., mitigation of credit rationing ), and the inclusion of labor market .
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