Impact of Making Cities Compact on Municipal Expenditures and Revenues

Abstract

　We analyzed the influence of urban compactness on property taxes per urban land area as well as municipal expenditure per capita. This was done by simulating the impact of policies that make cities compact on municipal expenditures and property tax revenue under future population decline and aging. As an indicator of urban compactness, we used the normalized standard distance. Our results show that municipalities with a high degree of urban compactness have a higher property tax per urban land area; moreover, there exists a degree of urban compactness that minimizes total expenditure per capita. In our simulation, a policy that maintains the same degree of urban compactness as the current policy is expected to improve revenues by 549 billion yen in the fiscal year 2030 and 1,226 billion yen in the fiscal year 2045. Furthermore, a policy that reduces the degree of urban compactness by 10% from the current one improves revenues by 1,703 billion yen in the fiscal year 2030 and 2,202 billion yen in the fiscal year 2045.