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How do local governments and housing markets respond to demographic information shocks? Evidence from Japan’s Extinction Risk List

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  • Inukai, Shinya

Abstract

Many countries face the prospect of shrinking populations. I use a unique event—the publication of a list of Japanese municipalities at risk of extinction by 2040—to estimate the impacts of declining populations on municipalities and housing markets using difference-in-differences models. The results show that the shock increases of 23.5% in regional development spending and 11.5% in child-oriented spending and a decrease of 3.67% in housing sales prices. Notably, by using the score information calculated for the judgment of possible extinction, I obtain a consistent result when limiting the sample to municipalities with a score close to the judgment threshold. This supports the interpretation that the effects on local government policy and housing markets are due to the adverse signal caused by the list publication rather than the demographic trends.

Suggested Citation

  • Inukai, Shinya, 2025. "How do local governments and housing markets respond to demographic information shocks? Evidence from Japan’s Extinction Risk List," European Journal of Political Economy, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:poleco:v:87:y:2025:i:c:s0176268025000230
    DOI: 10.1016/j.ejpoleco.2025.102663
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    More about this item

    Keywords

    Population decline; Local government finance; Housing price;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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