Impact of infrastructure on tax revenue: Case study of high-speed train in Japan

Abstract

This study analyzes the impact of a high-speed rail line on tax revenues and on the economy of affected regions within the country. The economic impact of infrastructure investment can be induced by changes in tax revenues when the infrastructure is in operation. Accurate regional GDP data are not necessarily available in many Asian countries. However, tax data can be collected. Therefore, this study uses tax revenue dates in order to estimate spillover effects of infrastructure investment. The Kyushu high-speed rail line was constructed in 1991 and was completed in 2003. In 2004, the rail line started operating from Kagoshima to Kumamoto. The entire line was opened in 2011. We estimated its impact in the Kyushu region of Japan by using the differencein-difference method, and compared the tax revenues of regions along the high-speed railway line with other regions that were not affected by the railway line. Our findings show a positive impact on the region's tax revenue following the connection of the Kyushu rapid train with large cities, such as Osaka and Tokyo. Tax revenue in the region significantly increased during construction in 1991-2003, and dropped after the start of operations in 2004-2010. The rapid train's impact on the neighboring prefectures of Kyushu is positive. However, in 2004However, in -2013, its impact on tax revenue in places farther from the rapid train was observed to be lower. When the Kyushu railway line was connected to the existing high-speed railway line of Sanyo, the situation changed. The study finds statistically significant and economically growing impact on tax revenue after it was completed and connected to other large cities, such as Osaka and Tokyo. Tax revenues in the regions close to the high-speed train is higher than in adjacent regions. The difference-in-difference coefficient methods reveal that corporate tax revenue was lower than personal income tax revenue during construction. However, the difference in corporate tax revenues rose after connectivity with large cities was completed. Public-private partnership (PPP) has been promoted in many Asian countries. However, PPP-infrastructure in India failed in many cases due to the low rate of return from infrastructure investment. This study shows that an increase of tax revenues is significant in the case of the Kyushu rapid train in Japan. If half of the incremental tax revenues were returned to private investors in infrastructure, the rate of return from infrastructure investment would significantly rise for long period of time. It would attract stable and long-term private investors, such as pension funds and insurance funds into infrastructure investment. The last section of the paper will address how incremental tax revenues created by the spillover effects of infrastructure will improve the performance of private investors in infrastructure investment.

Default risks, moral hazard and market-based solution: Evidence from renewable energy market in Bangladesh

“…18 shows the change in household income due to use of solar energy, which will increase gradually after an initial period as it takes some time for household members to make better use of electricity in education and generation of income. This pattern of spillover return is evident from some infrastructure projects in Japan and the Philippines (Yoshino and Abidhadjaev 2017;Yoshino, Nakahigashi, and Pontines 2017;Yoshino and Pontines 2015).…”

Making the BRI more inclusive

“…It would be reasonable, then, to use a portion of the increased tax revenue to provide risk guarantees for private investment or additional investment subsidies, which are highly effective institutional arrangements that encourage private investment. Instead of fully investing limited public capital in projects, the focus should be on using it as a leverage to unlock and maximise private investment (Yoshino and Abidhadjaev, 2017). China's Silk Road Fund, various policy banks, and the Asian Infrastructure Investment Bank should play this critical incentivising role.…”

Socioeconomic and Spatial Impacts of High-Speed Rail on Enterprises: An Ex-Ante Case Study of Ahmedabad Station Area, India

“…HSR is one of the major determinants of urbanization [2], economic development [7] and economic growth [8,9]. HSR plays a significant role in development of agglomeration economies [10], regional economy [11], and local economy [12] through wider economic impact [13][14][15], social impact [16][17][18], and environmental impact [19][20][21] on land use pattern [22], land value [23,24], and revenue generation [25] within urban agglomerations and outside the areas of the HSR network by connecting the neighborhood locations [16], which also depends on buoyancy of the local urban conditions [2,26]. HSR improves transportation system [27], increases accessibility [28,29], enhances regional attractiveness and development [30], improves businesses [31,32], fosters new opportunities, modernity and innovation [33], which increase employment growth and boost urban productivity [2] due to time savings [34,35], better market information [26], significant reduction in business cost [34], and agglomeration benefits [7].…”

“…HSR improves transportation system [27], increases accessibility [28,29], enhances regional attractiveness and development [30], improves businesses [31,32], fosters new opportunities, modernity and innovation [33], which increase employment growth and boost urban productivity [2] due to time savings [34,35], better market information [26], significant reduction in business cost [34], and agglomeration benefits [7]. Despite high investment in HSR development [36], HSR benefits the regional governments from increase in tax revenue [23,37], tourist inflow [38][39][40][41], and better performance of private investors [42,43]. Impact of HSR projects on regional tax revenue [23], productivity [44], and urban expansion [45] has been widely analyzed.…”

“…Despite high investment in HSR development [36], HSR benefits the regional governments from increase in tax revenue [23,37], tourist inflow [38][39][40][41], and better performance of private investors [42,43]. Impact of HSR projects on regional tax revenue [23], productivity [44], and urban expansion [45] has been widely analyzed. Chen and Haynes [8] analyzed HSR impact on economic agglomeration and growth, which benefits small and medium-sized cities around megacities [46].…”