Economic Analysis Series No.184
THE ECONOMIC ANALYSIS

January, 2011
The Impact of Global Recession on Japan's Trade:
Extensive and Intensive Margins in the Crisis
Banri ITO
Investment Timing and Uncertainty
Keiichi SHIMA
Empirical Analysis of Employer's Gender Role Attitudes
Hiroki YASUDA
A Decomposition of Global Business Cycles Using Structural FAVAR
Fumihide TAKEUCHI
Is Property Tax a Benefit Tax? The Case of Japanese Regions
Tomomi MIYAZAKI and Motohiro SATO
Simulation Analysis of Macroeconomic Impact of Large Scale Earthquake in Tokyo
Motohiro SATO
Kazumasa OGURO
An overview of the Survey of Family Relationship, Job Experience, Retirement
Allowances, and Intergenerational Transfers
Junya HAMAAKI
Masahiro HORI
Saeko MAEDA
Keiko MURATA

The full text is written in Japanese.

(Abstract)

The Impact of Global Recession on Japan's Trade:
Extensive and Intensive Margins in the Crisis

The financial crisis in 2008 caused worldwide credit shrinkage, and the world economy faced recession. The trade volume of Japan drastically decreased by half in only four months after the crisis compared with the year-ago month. The issue regarding how the global recession has caused the rapid trade reduction is of great interest in researcher and administrative official. This paper analyzes the impact of the global recession on the trade using the monthly trade statistics of Japan subdivided to the detailed commodity level for the period of January 2007 to March 2010. In this analysis, first, the change in the total volume of trade is divided into two components, i.e., extensive margin defined as a change in the number of commodities and the number of countries of dealings, and intensive margin defined as a change in the average value. Second, the gravity model is estimated to examine the possible different magnitude of trade determinants on each component before and behind crisis. From the results, it is clearly observed that the average value of trade, that is, intensive margin has sharply declined after the crisis, and it is suggested that fixed costs related to the trade entry be substantial. Further, it is found that the impact of economic size of the importing country increased remarkably after the crisis, and the slowdown in demand in each country strongly affected intensive margin in the trade reduction.

Investment Timing and Uncertainty

When investment expenditures are irreversible, theory suggests that firms will be disinclined to invest. The aim of this paper is to analyze the implications of the theory of irreversible investment under uncertainty using data from Japanese manufacturing firms. We estimate firm-level hazard functions using a flexible semiparametric specification.

We use a sample of 623 manufacturing firms listed on the Tokyo, Osaka, and Nagoya stock exchanges to test the impact of profit uncertainty on the timing of large investment projects. Hazard model estimates suggest an increase in profit uncertainty may delay the timing of large investment projects. We also examine the effects of financial constraints on a capital adjustment hazard by incorporating covariates such as cash flow, dividend payout, and bond market access. The results indicate that the effect of profit uncertainty on investment depends on the severity of financial constraints. Access to the bond market and higher cash flow both mitigating the financial constraints have a significant impact on the timing of large investments.

Empirical Analysis of Employer's Gender Role Attitudes

In this paper, we examine employer's sex discrimination. Especially, we try to distinguish employer's discrimination between employer's taste-based discrimination and stereotypes of gender role attitudes. Using Japanese General Social Surveys (JGSS), this paper examines whether employer (executive of a company or a corporation) has taste-based discrimination or gender role attitudes. From our analyses, we provide some evidence as follows. First, employer does not have a taste-based discrimination measuring by a questionnaire "if a woman runs for governor, will you vote for her if she is qualified for the job?" Second, employer has strong stereotypes of gender role attitudes. Third, employer has strong gender role attitudes that are "a husband's job is to earn money; a wife's job is to look after the home and family" and "it is more important for a wife to help her husband's career than to have one herself." Finally, it has strong relationship between employer's gender role attitudes ("if a husband has sufficient income, it is better for his wife not to have a job," "a husband's job is to earn money; a wife's job is to look after the home and family," and "it is more important for a wife to help her husband's career than to have one herself") and proportion of female employees at employer's workplace. This paper implies that background of sex discrimination in Japanese labor market exists on employer's gender role attitudes.

A Decomposition of Global Business Cycles Using Structural FAVAR

The recent global recession triggered by the financial crisis in the United States seems to invalidate the hypothesis frequently heard prior to the crisis that other countries can "decouple" from the US economy. At the same time, though, the literature on international business cycles suggests that, from a longer-term perspective, the global synchronization of business cycles is becoming somewhat less pronounced, while on the other hand regional synchronization among the highly integrated economies of North America, Western Europe, and emerging Asia, as well as between North America and Western Europe on the one hand and emerging Asia on the other, appears to be increasing.

This paper employs the structural FAVAR (structural factor-augmented vector autoregression) method to analyze factors affecting the business cycles of sixteen economies including the seven major developed and nine East Asian countries. Comparing these extracted shocks with empirically observed financial, productivity and natural resource price shocks reveals that all countries have been affected by soaring energy prices, especially in the 2000s. Another interesting feature to note is that the business cycles of East Asian economies are affected to a large extent by common factors, while those of the Euro zone countries are not. In East Asia, the observed business cycle synchronization appears to reflect the accumulation of technology (investment-specific technological change) embodied in capital goods traded vigorously in the region and also the fluctuation in the exchange rate of the Japanese yen vis--vis the US dollar, which has a close link to the competitiveness of their exports relative to Japanese exports. On the other hand, the synchronization of business cycles among developed countries arises through financial and total factor productivity (TFP) shocks.

Is Property Tax a Benefit Tax? The Case of Japanese Regions

This paper examines whether or not the property tax in Japan functions as a benefit tax through the empirical investigation and simulation.

The simulation given the current Japanese local public financial system reveals that while the property tax is a benefit tax for the residents (or the consumers of rental housing market), it is not so for the landlords (or the supplier of rental housing market). One of the reasons is that all of the local public services do not necessarily capitalize because the property tax revenue is not perfectly linked with public service under the current Japanese local tax system, which does not give local governments latitude on levying taxes. Therefore, we simulate the case which is assumed to have perfect linkage between local property tax revenue and public service. It is then established that the property tax becomes also a benefit tax for landlords if local governments are given the latitude on levying taxes. Moreover, comparing the results among regions, the property tax tends to function as a property tax in the urban area in both cases

To sum up, the benefit view of property tax does not apply to landlords under the current system in Japan. The property tax, however, can turn to be a benefit tax once fiscal decentralization proceeds so that local governments are more fiscally responsible for own expenditures that generates clear linkage between the public services and the property tax burden.

Simulation Analysis of Macroeconomic Impact of Large Scale Earthquake in Tokyo

The present paper considers a simple (Keynesian) macroeconomic model to quantify impacts of the large scale earthquake in Tokyo on national economy variables such as economic growth, price level, interest rate, fiscal balance by Monte Carlo simulations. In doing so, we account for the current situation of Japan public finance and society such as increasing public debt ratio to GDP and aging of the population. The simulations reveal that while GDP falls immediately after the disaster, there will be quick recovery restructuring projects boosting the economy. Overall, the impact of the earthquake on the economy seems to be limited. The reason behind this result is that our staged economy with society aging damps supply decline and increasing macro demand after the disaster with keeping GDP gap modest. It is noted however that the large scale earthquake increases probability that interest rate surges and government goes bankrupt with public debt being accumulated. The probability of the fiscal crisis in the year of 2020 is estimated to jump up from 12% without the earthquake to 43% in the scenario that it occurs in 2015. We also discuss ex ante preventive policies to mitigate detrimental effects of the disaster. They include captive, or fund for disaster relief and fiscal consolidation. These policies serve to mitigate the perverse effect of the earthquake on the economy.

An overview of the Survey of Family Relationship, Job Experience, Retirement Allowances, and Intergenerational Transfers

Japan is now facing the most drastic population aging among all the industrialized countries. The ongoing sweeping demographic changes-population aging combined with lower fertility-are posing an unprecedented challenge to the Japanese economy. Moreover, tax and social security reform have become imminent issues. To redesign the system properly, construction of micro-level data that provide the foundation for policy debate is indispensable.

Against this background, the Economic and Social Research Institute (ESRI) implemented a household survey titled "Survey of Family Relationship, Job Experience, Retirement Allowances, and Intergenerational Transfers," in January, 2010. While there are at least a few official sources of micro-level data on Japanese households, the survey is intended to complement existing government statistics, most of which do not cover information about asset holdings, retirement allowances, human capital, and the intergenerational transfers (through bequests). This overview outlines the survey, including its purpose, scope, and methodology. It also reports some summary statistics to illustrate the facts that are revealed by the survey.

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