Title: Essays on the Japanese Economy
Description: This dissertation uses national policy experiments and original datasets from Japan to explore issues in macroeconomics and public finance. In the first chapter, I provide new evidence of the feedback loop between corporate borrowing and commercial real estate investment emphasized in macro-finance models with collateral constraints. Japan enacted a series of reforms in the early 1980s which relaxed national regulatory constraints on the height and size of buildings. Combining local non-residential land price indices for over 400 localities with geocoded firm balance sheets, I show that these land use deregulations generated a boom-bust cycle in corporate real estate values, borrowing, and real estate investment. Firms located in more ex ante land use constrained areas both issued more debt and invested more heavily in real estate, thus amplifying the initial positive shock to commercial real estate prices. I develop a multi-city spatial sorting model with production externalities and real estate collateral which uses the estimated reduced form effects of my local regulatory instruments on firm outcomes to assess aggregate effects of the reform.

I find that the deregulatory shock to commercial real estate markets and corporate borrowing environment amplified the 1980s real estate cycle and led to an increased incidence of zombie lending in the 1990s. Governments often distribute payments through the income tax system to combat recessions. But how effective are such fiscal stimulus policies at targeting households who are likely to respond by increasing their spending? In the second chapter, we link geocoded household expenditure and financial transactions data to local housing price indices and document a U-shaped pattern with respect to housing price growth in the marginal propensity to consume (MPC) out of a large tax rebate. Recipients living in areas with the smallest housing price gains during the 1980s spent 44% of the 1994 Japanese rebate within three months of payment, compared to 23% among recipients in areas which experienced the largest housing price gains. While we find limited heterogeneity in MPCs among households in less-affected areas, MPCs are higher for younger, renter households with no debt residing in more-affected areas.

These findings are consistent with near-rational households for which the pricing shock was small relative to permanent income spending a larger fraction of the tax rebate. Our analysis suggests fiscal stimulus payments primarily induce spending among “winner” households who face minimal exposure to housing price cycles. The question of how policymakers should choose the frequency of payments has received little attention in the literature on the optimal design of public benefits programs. The third chapter proposes a simple model in which the government chooses the length of the interval between payments, subject to a tradeoff between the administrative cost of providing more frequent benefits and the welfare gain from reducing deviations from full consumption smoothing. In our empirical application, we examine consumer and retailer responses to bimonthly payments from the Japanese National Pension System. We exploit variation in the duration of payment cycles using a unique retail dataset that links consumers to their purchase history.

Our high frequency difference-in-differences approach shows a clear spike in spending on payment dates for customers who are of retirement age relative to those who are not. While within-store average prices increase by 1.6% on payday, this effect is almost entirely due to consumers substituting towards higher quality goods rather than a retailer response. We use these reduced form estimates to parameterize the model and conclude that the optimal frequency of Japanese public pension payments is less than one month, implying the government could improve welfare by increasing payment frequency.