Property Tax and Land Use: Evidence from the 1990s reforms in Japan

This paper examines the effects of property tax reforms at the beginning of the 1990s in Japan through theoretical and empirical investigation. Preferential treatment of farmland in the center of cities and inner suburbs is not favorable because it may hinder changing such land into residential areas and henceforth deter urbanization. We utilize a natural experiment provided by the aforementioned reforms. The results reveal that the proportion of farmland that might have impeded urbanization decreased after the reforms in major cities within metropolitan areas. However, landlords did not necessarily replace all of the land with housing lots, suggesting that the government should have conducted the reforms in a way to promote more conversion.