Property Tax Web Series

Abstract for Effects of Shrinking Population on Local Government and Housing Markets: Evidence from Japan

Many countries—both developed and emerging—face the prospect of shrinking populations. This demographic trend has become an economic and social problem affecting economic growth and generational and regional inequality. However, since population declines proceed steadily, they are not a shock, and it is difficult to estimate their effects because they are endogenous to each context. I use a unique event—the publication of a list of Japanese municipalities at risk of extinction by 2040—to estimate the impacts of declining populations on municipalities and housing markets using difference-in-differences models. Because this information shock conveys the significance of shrinking populations in certain areas, I can identify the causal effects of population decline. The results show that the designation of future “extinction” has the following effects: increases of 23.5% in regional revitalization and 11.5% in child-oriented spending and a decrease of 3.67 % in housing sales prices. The study’s insights provide new evidence of the impact of population decline on local governments and housing markets.