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Distortionary Taxation, Excessive Price Sensitivity, and Japanese Land Prices

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  • Kiyohiko G. Nishimura
  • Fukujyu Yamazaki
  • Takako Idee
  • Toshiaki Watanabe
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    Abstract

    Japan has experienced turbulent behavior of land prices after World War II, especially after 1985. This paper first examines the explanatory power of a simple present-value model and shows its limitation. We then investigate two additional (not mutually exclusive) factors affecting the Japanese land price behavior: distortionary inheritance and capital-gains taxation, and excessive price sensitivity due to the non-Walrasian structure of the land market. Empirical results show that distortionary taxation is a major culprit of high residential land price, and that the non-Walrasian price behavior magnifies the effect of underlying change in the market fundamentals.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7254.

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    Date of creation: Jul 1999
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    Handle: RePEc:nbr:nberwo:7254

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    1. Neil Shephard, 2005. "Stochastic Volatility," Economics Papers 2005-W17, Economics Group, Nuffield College, University of Oxford.
    2. Ng, Victor & Engle, Robert F. & Rothschild, Michael, 1992. "A multi-dynamic-factor model for stock returns," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 245-266.
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    4. Fujita, Masahisa & Kashiwadani, Masuo, 1989. "Testing the efficiency of urban spatial growth: A case study of Tokyo," Journal of Urban Economics, Elsevier, vol. 25(2), pages 156-192, March.
    5. Michael M. Hutchison, 1993. "Asset price fluctuations in Japan: what role for monetary policy?," Pacific Basin Working Paper Series 93-11, Federal Reserve Bank of San Francisco.
    6. Engle, Robert F. & Ng, Victor K. & Rothschild, Michael, 1990. "Asset pricing with a factor-arch covariance structure : Empirical estimates for treasury bills," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 213-237.
    7. Takatoshi Ito & Tokuo Iwaisako, 1995. "Explaining Asset Bubbles in Japan," NBER Working Papers 5358, National Bureau of Economic Research, Inc.
    8. Takatoshi Ito, 1994. "Public Policy and Housing in Japan," NBER Chapters, in: Housing Markets in the U.S. and Japan, pages 215-238 National Bureau of Economic Research, Inc.
    9. Mervyn King & Enrique Sentana & Sushil Wadhwani, 1990. "Volatiltiy and Links Between National Stock Markets," NBER Working Papers 3357, National Bureau of Economic Research, Inc.
    10. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
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    Cited by:
    1. Mitchell, Olivia S. & Piggott, John, 2004. "Unlocking housing equity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 18(4), pages 466-505, December.
    2. Alpanda, Sami, 2007. "The Boom-Bust Cycle in Japanese Asset Prices," MPRA Paper 5895, University Library of Munich, Germany.

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