Regional Inequality in Fiscal Capacity and Allocation of Tax Sources: Do Local Allocation Taxes Correct the Inequality?

This study examines regional inequality in general revenues and in local taxes, including local income tax, the two types of local corporate tax and local consumption tax, and also discusses the reform of local tax and local allocation tax (which is intended to correct regional inequality). Specifically, the study tabulates figures for such items as the amounts of general revenues per person, intergovernmental transfers (ordinary local allocation tax and local transfer tax), and local taxes at the prefectural and municipal levels with regard to each of the 47 prefectures and analyzes the scale of the inequality using graphs and Gini coefficients. As a result of the analysis, the following findings were obtained. First, local allocation taxes expand the inequality in general revenues per person. Second, the expansion of local corporate taxation widens the inequality in general revenues per person. Third, the reform of the local consumption tax will hardly reduce the fiscal inequality between regions or may even aggravate it. Fourth, reducing local allocation taxes universally will correct the inequality in general revenues per person. These findings suggest that local allocation taxes are expanding the fiscal inequality between regions and that in order to correct the inequality, the reform of local allocation taxes, rather than the expansion of local corporate taxation or the reform of the local consumption tax, should be implemented.