On the "lock-in" effects of capital gains taxation

Article Abstract:

The most significant disadvantage of capital gains taxation upon realization instead of on accrual is its 'lock-in' effect. Investors are usually locked into assets previously purchased because taxes are deferred until the sale of the asset. The distortion produced by the lock-in effect was investigated using a simple land development. Results showed that taxation of realized capital gains may or may not produce the lock-in effect. It arises when the basis for taxation is low. When the basis for the capital gains tax is high enough, however, the effect is not observed because the owner sells the land immediately if the land will be developed much later. Thus, the tax generates no distortion since it does not influence the development time. Particularly, the lock-in effect never emerges when the basis is the price formed under perfect foresight.

Taxation, Real estate development, Capital gains tax

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A new approach to the estimation of structural equations in hedonic models

Article Abstract:

An estimation method is developed for housing demand functions that differs from previous techniques, in that the shape of the bid price function is restricted to a certain quadratic form. This reshaping of the bid price function allows unobserved characteristics of commodities to be incorporated and makes statistical testing much easier. The estimation method developed and Quigley's estimation method are applied to Japanese housing data, and the estimates provided by the two methods are compared. The sets of estimates differ considerably. After an explanation of the fundamental difficulty of estimating structural equations in hedonic models, Quigley's estimation method is explained. Both the method developed and Quigley's method are viable alternatives to estimating housing markets and the demand therein.

Models, Japan, Supply and demand, Housing, Mathematical models, Equilibrium (Economics)

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Optimal cities with indivisibility in production and interactions between firms

Article Abstract:

A model to address the urban economics question of why cities exist is proposed. The model suggests a theoretical foundation for agglomeration economics. Also, the model stipulates without indivisibility, or scale economies, that externalities do not follow the transactions of intermediate inputs. A new location for a company alters the interaction costs incurred by a firm, as well as the costs of other companies. If a company does not take into consideration the effects on other companies, a typical externality problem results. Research results indicate that when using a closed-form solution with the suggested model, the optimal city size is larger if interaction costs are lower; interaction benefits are higher; and commuting costs are lower.

Analysis, Business-to-business market, Business to business market, Cities and towns, Growth, Metropolitan areas, Industrial locations, Industrial location

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