Abstract
The purpose of this paper is to analyze theoretically the effect of the actual property tax in Japan using theoption model, comparing with the traditional model.
The model of the most literatures (the traditional model) is the NPV model and assumes that the propertytax levies in proportion to the property value, that is to say, the effective rate of the property tax to theproperty value is constant. However, in Japan, the effective rate of the property tax changes year after year. Because the land and the building are levied separately, the target value of the building doesn't depend on thevalue capitalized the future income but the construction cost, and the target value of land isn't always the landvalue, although the nominal rate of land and building tax is constant. Therefore, the actual effect of the propertytax in Japan is different from the effect in the traditional model.
