LAND AND RATIONAL BUBBLES IN A SMALL OPEN ECONOMY

抄録

A positive productivity shock contemporaneously overshoots the shadow prices of land and capital, being followed by stimulated investment and higher land price inflation due to the presence of land adjustment cost.
Sectoral differences in land property tax may generate bubbles under perfect foresight. It is, however, ‘super rational’ and completely consistent with agents' long-run optimization behavior. The bubbles do not emerge if the tax favors households and if the land reallocation cost is sufficiently small.
Therefore, differential land tax treatment, in combination with a productivity shock, seemed to play one of crucial roles for recent land price bubbles in Japan. The recent revision of house and land renting law will decrease the adjustment cost to contribute to stabilizing the land price.