Taxation, collateral use of land, and Japanese asset prices
Japan experienced a significant increase in land and stock prices in the late 1980s and a subsequent reversal in these asset prices in the 1990s. I use a neoclassical growth model to determine how much of these asset price movements can be accounted for by the observed changes in output growth and land-related taxation. In the model, corporations issue land-collateralized debt to reduce their tax liabilities, and the government follows a land-taxation policy that is countercyclical to land prices. Without these features, the model cannot generate any significant change in land values, even with a permanent increase in the growth rate of the economy, because a permanent increase in the growth rate results in a comparable increase at the rate at which agents discount future returns. The collateral use of land and countercyclical land-tax policy introduce a substantial magnification mechanism for asset prices by reducing the required return on land. I calibrate the model to Japanese data, and conduct steady-state experiments and deterministic simulations. I show that if the observed increase in the growth rate of productivity and the decline in land taxes were expected to be permanent by market participants, then the model can by and large account for the movements in land and stock prices, but has counterfactual predictions regarding the behavior of capital. If agents expect the observed changes in the fundamentals to be temporary, then the model cannot generate a significant increase in these asset prices. Copyright Springer-Verlag 2012
Volume (Year): 43 (2012)
Issue (Month): 2 (October)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/econometrics/journal/181/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- French, Kenneth R. & Poterba, James M., 1991.
"Were Japanese stock prices too high?,"
Journal of Financial Economics,
Elsevier, vol. 29(2), pages 337-363, October.
- Kenneth R. French & James M. Poterba, 1990. "Were Japanese Stock Prices Too High?," NBER Working Papers 3290, National Bureau of Economic Research, Inc.
- French, K.R. & Poterba, J.M., 1990. "Are Japanese Stock Prices Too High?," Working papers 547, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hiroki Arato & Katsunori Yamada, 2012.
"Japan's Intangible Capital and Valuation of Corporations in a Neoclassical Framework,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 459-478, October.
- Hiroki Arato & Katsunori Yamada, 2010. "Japan's Intangible Capital and Valuation of Corporations in a Neoclassical Framework," ISER Discussion Paper 0772, Institute of Social and Economic Research, Osaka University, revised Nov 2011.
- Hiroki Arato & Katsunori Yamada, 2011. "Code and data files for "Japan's Intangible Capital and Valuation of Corporations in a Neoclassical Framework"," Computer Codes 10-34, Review of Economic Dynamics.
- Kiyohiko G. Nishimura & Fukujyu Yamazaki & Takako Idee & Toshiaki Watanabe, 1999. "Distortionary Taxation, Excessive Price Sensitivity, and Japanese Land Prices," NBER Working Papers 7254, National Bureau of Economic Research, Inc.
- Edward C. Prescott, 1986.
"Theory ahead of business cycle measurement,"
102, Federal Reserve Bank of Minneapolis.
- Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
- Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
- Nobuhiro Kiyotaki & John Moore, 1995.
NBER Working Papers
5083, National Bureau of Economic Research, Inc.
- Ishi, Hiromitsu, 2001. "The Japanese Tax System," OUP Catalogue, Oxford University Press, edition 3, number 9780199242566, December.
- Selahattin Imrohoroglu & Ayse Imrohoroglu & Kaiji Chen, 2006. "The Japanese Saving Rate," American Economic Review, American Economic Association, vol. 96(5), pages 1850-1858, December.
- Adrian Peralta-Alva, 2005.
"The Information Technology Revolution and the Puzzling Trends in Tobin’s average q,"
- Adrian Peralta-Alva, 2007. "THE INFORMATION TECHNOLOGY REVOLUTION AND THE PUZZLING TRENDS IN TOBIN'S AVERAGE "q"," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 929-951, 08.
- Adrian Peralta-Alva, 2005. "The Information Technology Revolution and the Puzzling Trends in Tobin’s average q," Development and Comp Systems 0511003, EconWPA.
- R. Mehra & E. Prescott, 2010.
"The equity premium: a puzzle,"
Levine's Working Paper Archive
1401, David K. Levine.
- Ellen R. McGrattan & Edward C. Prescott, 2005.
"Taxes, regulations, and the value of U.S. and U.K. corporations,"
309, Federal Reserve Bank of Minneapolis.
- Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 767-796.
- Ellen R. McGrattan & Edward C. Prescott, 2004. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Levine's Bibliography 122247000000000715, UCLA Department of Economics.
- Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
- Douglas Stone & William T. Ziemba, 1993. "Land and Stock Prices in Japan," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 149-165, Summer.
- Michele Boldrin & David K. Levine, 2000.
"Growth cycles and market crashes,"
279, Federal Reserve Bank of Minneapolis.
- Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
- Takatoshi Ito & Tokuo Iwaisako, 1995.
"Explaining Asset Bubbles in Japan,"
NBER Working Papers
5358, National Bureau of Economic Research, Inc.
- Shiro Kuwahara & Katsunori Yamada, 2008. "Local Home Environment Externality is a Source of Indeterminacy," ISER Discussion Paper 0722, Institute of Social and Economic Research, Osaka University, revised Jul 2009.
- Nakajima, Tomoyuki, 2008.
"Asset price fluctuations in Japan: 1980-2000,"
Japan and the World Economy,
Elsevier, vol. 20(1), pages 129-153, January.
When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:43:y:2012:i:2:p:819-850. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.