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Distortionary Taxation, Excessive Price Sensitivity, and Japanese Land Prices

  • Kiyohiko G. Nishimura
  • Fukujyu Yamazaki
  • Takako Idee
  • Toshiaki Watanabe
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    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
    Date of revision:
    Handle: RePEc:nbr:nberwo:7254
    Note: PE
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    1. Takatoshi Ito & Tokuo Iwaisako, 1995. "Explaining Asset Bubbles in Japan," NBER Working Papers 5358, National Bureau of Economic Research, Inc.
    2. Kanemoto, Yoshitsugu, 1997. "The housing question in Japan," Regional Science and Urban Economics, Elsevier, vol. 27(6), pages 613-641, November.
    3. 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, vol. 12(2), pages 61-83, December.
    4. Takatoshi Ito, 1994. "Public Policy and Housing in Japan," NBER Chapters, in: Housing Markets in the United States and Japan, pages 215-238 National Bureau of Economic Research, Inc.
    5. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-33, July.
    6. Neil Shephard, 2005. "Stochastic Volatility," Economics Papers 2005-W17, Economics Group, Nuffield College, University of Oxford.
    7. 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.
    8. 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.
    9. 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.
    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.
    11. 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.
    12. Kiyohiko G. Nishimura, 1999. "Expectations Heterogeneity and Excessive Price Sensitivity in the Land Market," The Japanese Economic Review, Japanese Economic Association, vol. 50(1), pages 26-43, 03.
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