Capitalization of local government grants on land values: Evidence from Tokyo metropolitan area, Japan

Takafumi Suzuki

Japan and the World Economy, 2021, vol. 60, issue C

Abstract: This study investigates the capitalization effect of intergovernmental fiscal transfers from central to local governments on land prices. Using a drop in the size number of fiscal transfers following fiscal reform in the early 2000 s, this study examines the extent to which unconditional fiscal transfers to municipalities in the Tokyo metropolitan area are attributed to land prices. The result shows that the decline in the transfer has decreased the land prices in the municipalities. Furthermore, reducing one unit in the per capita grant reduced the value of housing area per capita by one or more units, even if the real discount rate was assumed to be as low as 2%. Therefore, the fiscal transfer reform more negatively affects the benefits of residing in a municipality in the area than the reduction amount in the transfer.

Keywords: Capitalization; House prices; Intergovernmental fiscal transfers; Local governments (search for similar items in EconPapers)
JEL-codes: H71 H77 R51 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:60:y:2021:i:c:s0922142521000517

DOI: 10.1016/j.japwor.2021.101106

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