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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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    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. Robert F. Engle & Victor Ng & Michael Rothschild, 1988. "Asset Pricing with a Factor Arch Covariance Structure: Empirical Estimates for Treasury Bills," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0065, National Bureau of Economic Research, Inc.
    2. Takatoshi Ito & Tokuo Iwaisako, 1996. "Explaining Asset Bubbles in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 143-193, July.
    3. Kanemoto, Yoshitsugu, 1997. "The housing question in Japan," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 27(6), pages 613-641, November.
    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. Takatoshi Ito, 1994. "Public Policy and Housing in Japan," NBER Chapters, National Bureau of Economic Research, Inc, in: Housing Markets in the U.S. and Japan, pages 215-238 National Bureau of Economic Research, Inc.
    6. Ng, Victor & Engle, Robert F. & Rothschild, Michael, 1992. "A multi-dynamic-factor model for stock returns," Journal of Econometrics, Elsevier, Elsevier, vol. 52(1-2), pages 245-266.
    7. Douglas Stone & William T. Ziemba, 1993. "Land and Stock Prices in Japan," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 7(3), pages 149-165, Summer.
    8. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, Econometric Society, vol. 62(4), pages 901-33, July.
    9. Neil Shephard, 2005. "Stochastic volatility," Economics Series Working Papers, University of Oxford, Department of Economics 2005-W17, University of Oxford, Department of Economics.
    10. Kiyohiko G. Nishimura, 1999. "Expectations Heterogeneity and Excessive Price Sensitivity in the Land Market," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 50(1), pages 26-43, 03.
    11. Michael M. Hutchison, 1993. "Asset price fluctuations in Japan: what role for monetary policy?," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 93-11, Federal Reserve Bank of San Francisco.
    12. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
    13. Michael M. Hutchison, 1994. "Asset Price Fluctuations in Japan: What Role for Monetary Policy?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 12(2), pages 61-83, December.
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    Cited by:
    1. Olivia S. Mitchell & John Piggott, 2004. "Unlocking Housing Equity in Japan," NBER Working Papers 10340, National Bureau of Economic Research, Inc.
    2. Sami Alpanda, 2012. "Taxation, collateral use of land, and Japanese asset prices," Empirical Economics, Springer, Springer, vol. 43(2), pages 819-850, October.
    3. Alpanda, Sami, 2007. "The Boom-Bust Cycle in Japanese Asset Prices," MPRA Paper 5895, University Library of Munich, Germany.

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