NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Distortionary Taxation, Excessive Price Sensitivity, and Japanese Land Prices

Kiyohiko G. Nishimura, Fukujyu Yamazaki, Takako Idee, Toshiaki Watanabe

NBER Working Paper No. 7254
Issued in July 1999
NBER Program(s):   PE

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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Document Object Identifier (DOI): 10.3386/w7254

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