Takahisa Yokoi (p)

Dylan Jong

Local governments in Japan set upper limits on the allowable floor-area-ratio (FAR) with the aim of controlling population growth and externalities. The FAR limit has been treated as a variable in empirical models of real estate prices in Japan. A low-enough value of the maximum acceptable FAR necessitates low building heights, but beyond a certain value it does not have any direct effect on the actual heights of buildings. There are, however, indirect (negative) effects on real estate prices from possible tall buildings in the surroundings. Our hypothesis is that the mechanism by which the FAR control affects real estate prices depends on the relation between the privately determined optimal FAR and the regulatory FAR values. To test this hypothesis, we conduct an empirical research using a real estate transaction price datasets from the Ministry of Land, Infrastructure and Transport. First, each sample is divided into two subsets. In one, the regulation constrains the actual heights. In the other, it does not. The percentage of constrained heights in a municipality reflects the local public policy on population growth. Estimation of spatial econometric models measures strategic interdependence among neighboring municipalities on height regulation. Next, we estimate an optimal FAR function using constrained samples. This estimated function is used to predict the population changes caused by changes in FAR regulation. It also provides a guideline as to whether the FAR limit should be treated as an explanatory factor in models of land price. Finally, we simulate the urban population level without FAR regulations. In other words, we can confirm how much the population concentration in Japanese cities is suppressed by FAR regulation.

Arthur Grimes (p)

Henri de Groot

A land tax has long been recognised as an efficient tax through which central or local government can fund its expenditures. It is also recognised that a capital value tax (which taxes the value both of the land and any improvement on it) discourages development whereas a land tax has no associated discouragement for development. A land value tax therefore contributes to greater urban intensification relative to a capital value tax. A related literature analyses the properties of a ‘betterment’ tax based on the uplift (betterment) in property values that may result from a new infrastructure investment, as mooted by JS Mill. This paper analyses equity, as well as efficiency, outcomes that arise when funding a new infrastructure development through these three different types of property tax, i.e. (i) a proportional capital value tax, (ii) a proportional land value tax, and (iii) a betterment tax on land value uplift. The comparison is formulated initially within a partial equilibrium model that takes city population as given. The paper then adopts a general equilibrium approach which examines city level outcomes of an infrastructure investment where that investment is funded either by a land value tax or some other form of tax. The analyses demonstrate not only the efficiency advantages of land value and betterment taxes relative to a capital value tax, but also the equity advantages of a betterment tax over Henry George’s ‘single tax’ on land value.

Dylan Jong (p), Philip McCann, Viktor Venhorst

Benedikt Herrmann

This paper examines the economic growth effects of the local public fiscal composition. New data allows for an extensive analysis on the local economic growth effects of over 100 revenue and expenditure categories in United States cities, with a further distinction between capital outlay and current operations expenditures. The data also presents a solution to the local fiscal comparability issue. Furthermore, by focusing on the complete local public fiscal composition of cities, this paper considers the constrained choice set policy makers face. Results show that local public revenues are only distortionary when used to fund non-productive expenditures. When used to fund productive expenditures, increased revenues may enhance economic growth. Relatively productive expenditures are public welfare, highways, utilities, and commercial activities. Unproductive expenditures are public safety, health, parks & recreation, public buildings and interest on general debt.

Benedikt Herrmann (p), Oleksii Hamaniuk, Felix Rösel

Takahisa Yokoi

This study explores the impact of fiscal structure on the tax compliance and local economic growth, focusing on the unique context in Ukraine between 2016 and 2020, during which two distinct fiscal systems operated simultaneously due to the decentralisation reform. Our analysis indicates that transitioning to a fiscal system where municipalities receive a substantially higher share of personal income tax (PIT) results in increased PIT payments even controlling for the night-light index, an economic activity proxy. We attribute these processes to several factors. Firstly, the new fiscal system might stimulate economic growth, leading to an expansion of the tax base as local governments are incentivised to foster local economic development. Secondly, tax compliance might increase within the new framework, aligning with findings from experimental literature on contributions to local versus global public goods. Taxpayers’ willingness to pay taxes might increase when taxes are allocated to municipal budgets, making public good provisions more tangible to taxpayers.

Henri L.F. de Groot (p), Thomas de Graaff, Yashvant Premchand

Arthur Grimes

Throughout Europe, starters on the housing market are struggling to find affordable houses. An important part of the problem is to find the financial resources that are required to finance the public investments in, for example, local infrastructure, public facilities such as libraries, etc. This results in lack of construction of new housing stock. At the same time, we know that land values vary widely within countries, within regions and even within cities. And with growing cities and their associated urban externalities, land values tend to increase sharply, yielding large rent-surpluses for those who already own the land and remaining unexploited for the financing of necessary public goods. Those increases in land values may also lead to disincentives for construction of new housing as expected future profits are higher. This paper assesses what the effects are of the difference in public and private land ownership on both housing prices and newly built housing stock, where we aim to tease out the negative effect of both local taxation and larger housing supply on housing prices on the one hand and the positive effects of local public investments on the other hand. Preliminary results for the Netherlands point to lower prices and more new housing for those municipalities that are active on the land market and publicly invest in future housing plots; investments which can be recuperated using, for example, lease hold constructions.