The Effect of Cartels on Government Bond Revenue

In 1989, the Japanese government introduced auctions for the sale of 10-year government bonds, replacing the legal cartel syndicates that had previously coordinated prices. Using this policy change as a natural experiment, this paper uses a difference-in-differences (DID) methodology to assess the effect of cartels on government revenues in the primary market for government bonds, finding that cartel prices were lower than auction prices by 1.5 percent or more. These results imply that the prior use of legal cartels had reduced Japanese government revenues from bond sales by at least 0.025 percent of Japan's GDP or USD 1.1 billion