Impact of Infrastructure Investment on Tax: Estimating Spillover Effects of the Kyushu High-Speed Rail Line in Japan on Regional Tax Revenue

Abstract

This paper analyzes the impact of infrastructure investment on tax revenues and on the regional economy by studying the effect of the Kyushu high-speed rail line (shinkansen train) in Japan. The effects of the Kyushu high-speed rail line on the economy has often been debated. We estimated its impact in the Kyushu region by using the difference-in-difference method, and compared the tax revenues of regions along the railway line with other regions that were not affected by it. 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 Hiroshima and Osaka. Tax revenue in the region significantly increased during the 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. 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. The railway’s connectivity to large cities has a significant economic impact not only in the case of Japan but also in other cases such as Uzbekistan.