# AN ECONOMETRIC ANALYSIS ON THE TAXATION ON LAND

- An econometric analysis of the property tax on the supply and price of the effects of land -

## ABSTRACT

The purpose of this paper is to analyze the effects of the changes in the property tax rate on the supply and the price of land. For this purpose, using the theory on portfolio selection and econometric methods, we examine three types of changes in the tax rate, $ ^{(1)} $ to raise the tax rate for the farmland in urban districts to the same level as the rate for the housing land, $ ^{(2)} $ to raise the property tax rate, and $ ^{(3)} $ to raise the property tax rate and simultaneously lower the local income tax.

This paper consists of the two economic analyses,(I) the analysis at city - level in Tokyo and Kanagawa, and (II) the analyses at prefecture-level all over Japan.

### Part I. AN ESTIMATION OF TOKYO - KANAGAWA MODEL

In order to analyze the effects of the change in the property tax rate, we collected tax and land price data of 33 cities in Tokyo and Kanagawa Prefectures. In estimating the land price and demand functions, we use two-stage least squares method. In the first stage, we estimate the reduced form, that is the land price function. Secondly, we estimate the land demand function.

### PART II. THE CITY - LEVEL SIMULATIONS IN TOKYO AND KANAGAWA MODEL

In this part, first we estimate a standard case. In this case land price and demand functions without any change in the tax rate are predicted. Next with the change of tax system, we estimate how much the price and demand differ from the standard case.

Case 1 to 3 are the simulations that the tax rate for farmland in urban districts is raised to the same level as that for housing land. Case 4 to 6 are the simulations that tax rate for farmland is raised to the same level as that for housing land, and simultaneously, the effective property tax rate (the tax rate for farmland included) is raised to 1.4%. In case 7 and 8, we raise the property tax rate by 0.7% and 0.35%. Case 9 is the simulation that the tax rate for farmland is raised to the same level as that for housing land and simultaneously the property tax rate is raised by 3000 yen per one square meter. Case 10 is the one that, in addition to case 9, the local income tax revenue is reduced by the increases in the property tax revenue.

### PART III. THE PREFECTURE - LEVEL SIMUIATION ALL OVER JAPAN

In this part, we only estimate the land price functions of all prefectures in Japan in the following three cases.

Case 11 to 13 are the simulations that the property tax rate is raised to the same level as the above case 5, 7, and 8. Compared to the city-level case, there are some differences between the two results due to the differences in the method of estimation. Trends of results, however, seem similar in both cases.

According to our analyses, by raising the tax rate for farmland to the same level as that for housing land and raising the property tax rate, farmland will be changed into housing land gradually and the land price will be decreased. In order to solve the land problems, not only the reform of land tax system but also other complementary policies are necessary.