Working Papers

This paper uses a natural experiment in Japan to provide evidence of the feedback loop between corporate borrowing and commercial real estate investment emphasized in macro-finance models with collateral constraints. Japan enacted a series of reforms in the early 1980s which relaxed national regulatory constraints on the height and size of buildings. Combining originally-constructed local commercial land price indices for over 400 localities with geocoded firm balance sheets, I show that these land use deregulations generated a boom-bust cycle in corporate real estate values, borrowing, and real estate investment. Firms located in more ex ante land use constrained areas both issued more debt and invested more heavily in real estate, thus amplifying the initial positive shock to commercial real estate prices. I develop a multi-city spatial sorting model with production externalities and real estate collateral which uses the estimated reduced form effects of my local regulatory instruments on firm outcomes to assess aggregate effects of the reform. I find that the deregulatory shock to commercial real estate markets and corporate borrowing environment amplified the real estate cycle in the 1980s and led to an increased incidence of zombie lending in the 1990s.

This paper documents heterogeneous spending out of a large stimulus tax rebate by exposure to the 1980s Japanese housing market turbulence. Linking geocoded household expenditure and financial transactions data to a new set of local housing price indices in Japan, we estimate a U-shaped pattern in the marginal propensity to consume with respect to housing price growth. Recipients living in areas with the smallest housing price gains during the 1980s spent 47% of the 1994 rebate within three months of payment, compared to 24% among recipients in areas which experienced the largest housing price gains. We find limited heterogeneity in marginal propensities to consume among households in less affected areas, but MPCs are higher for younger, renter households with no debt residing in more affected areas. Our results are consistent with near-rationality rather than a liquidity constraint story. Winners who are less exposed to housing risk respond more to payments, implying policies which target losers from housing market downturns may be less effective at stimulating consumption.

The question of how governments should choose the frequency of payments has received little attention in the literature on the optimal design of public benefits programs. We propose a simple model in which the government chooses the length of the interval between payments, subject to a tradeoff between the administrative cost of providing more frequent benefits and the welfare gain from reducing deviations from full consumption smoothing. In our empirical application, we examine consumer and retailer responses to bimonthly payments from the Japanese National Pension System. We exploit variation in the duration of payment cycles using a unique retail dataset that links consumers to their purchase history. Our difference-in-differences style approach shows a clear spike in spending on payment dates for customers who are of retirement age relative to those who are not. While within-store average prices increase by 1.6% on payday, this effect is almost entirely due to consumers substituting towards higher quality goods rather than a retailer response. We use these reduced-form estimates to parameterize the model and conclude that the optimal frequency of Japanese public pension payments is less than one month, implying the government could improve welfare by increasing payment frequency.

Works in Progress

Flip or Flop? Tobin Taxes in the Real Estate Market

with Chun-Che Chi & Ming-Jen Lin

This paper analyzes the effects of property transfer taxes on housing prices and investment decisions. Taiwan implemented a reform in 2011 which required  sellers of non-owner occupied properties to pay a surcharge of up to 15% of the full sale price for properties resold within two years from the original purchase date. Linking the universe of personal income tax returns to transaction records, we show immediate and substantial bunching at the one-year and two-year holding period thresholds under this tax but no such bunching prior to implementation, with most of the response driven by out-of-town investors. Transaction prices do fall slightly after implementation, with stronger effects for properties sold by institutional investors. Overall second home sales volume sharply declines in the post-reform period, with many sellers delaying large, high-end property sales to avoid the tax. Using inheritance shocks to housing wealth, we document sellers who persist in spite of the new tax extract a small premium from buyers, pointing to a relatively large negative effect on inventory. Our results suggest "Tobin taxes" on property flips have limited effects towards curbing demand-driven booms in real estate prices.

The Saved and the Probate: Trade-offs between Asset Control and Inheritance Tax Minimization

with Lorenzo Pessina

Microbubbles and Local Property Tax Regimes 

with Takashi Unayama

Delaying the Honeymoon: The Great Decline in American Vacation

Revisiting the Incidence of Mandated Benefits: Evidence from U.S. Sick Pay Mandates