The effects of bequest tax on land prices and land use

The paper examines whether bequest taxation affects land use, using an overlapping-generations model. In Japan, in assessing land for the purpose of inheritance taxation, the assessed value is less than the market value; however, other assets are valued at market value. Such an asymmetry creates a greater incentive for the older generation to hold land, because the probability of decease is higher for older than younger persons. With constant technology available in each generation, the inheritance tax is found to lead to inefficient land use, sluggish conversion of land over time and higher land prices. JEL Classification Numbers: H24, R14.