Journal on Policy and Complex Systems
Figure 9 . Influence of the upper limit of the number of loans on the relationships between corporate tax rate and GDP ( Panel a ) and total number of investment ( Panel b ).
In this study , the influence of the labor market is also analyzed . However , as shown in Figure 10 , the positive effect of corporate tax reduction is reproduced without depending on the inclusion of the labor market , if the four factors mentioned above are already included in the model . Thus , we conclude that inclusion of the labor market is not a required condition for reproducing the positive influence of corporate tax reduction .
In sum , it is concluded that four factors — the inefficiency of government expenditure , executive compensation , the use of internal funds for investment , and an increase in the upper limit of the number of loans ( i . e ., mitigation of credit rationing )— must be included in the model to reproduce the negative correlation between the corporate tax rate and GDP . If any one of these factors is not included , the positive effect of corporate tax reduction cannot be reproduced . In other words , among the 16 possible combinations that include or exclude each of these four factors , only one case in which all four factors are included successfully reproduced the positive effect of corporate tax reduction . Although we considered before the experiment that unemployment levels could affect the influence of tax reduction , the results show that the negative correlation between GDP and the corporate tax rate is consistently reproduced regardless of the existence of the labor market if the four factors mentioned above are included in the model , as shown in Figure 10 , indicating that the inclusion of the labor market in the model is not an indispensable condition for reproducing the negative correlation .
Now , let us consider the reason why these four factors are necessary to reproduce the positive influence of corporate tax reduction . It is noted that two of the four factors , namely , the use of internal funds for investment and the mitigation of credit rationing are the factors that promote a firm ’ s investment , which makes the firm ’ s surplus money increased by the corporate tax reduction consumed in the market without being deposited in the bank . Executive compensation is another factor that promotes the firm ’ s surplus money
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