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A case study of central and local government finance in Japan

In: Central and Local Government Relations in Asia

Author

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  • Shun-ichiro Bessho

Abstract

This chapter aims to provide an overview of the basics of Japan’s local public administration and finance system and to analyze how Japan’s municipalities restore their fiscal balance after a fiscal shock. In Japan, local governments play a major role in redistribution. Combined with regional disparities in tax capacities and an inflexible local tax system, there is a large vertical fiscal gap in Japan between the central and local governments – a gap that necessitates the transfer of funds from central to local governments. Under this system, the fiscal adjustments in Japan’s municipalities occur mainly via changes in government investment, and they account for 63–95 percent of adjustments in permanent unit innovations in grants and own-source revenue. In contrast to the role of expenditure, the municipalities’ own-source revenue plays a limited role in balancing the local budget. The results of this chapter also reveal that 40 percent of the increase in own-source revenue is offset by a reduction in grants. Furthermore, municipalities can induce grants by expanding government current expenditure. Finally, this chapter offers and discusses some policy implications.

Suggested Citation

  • Shun-ichiro Bessho, 2017. "A case study of central and local government finance in Japan," Chapters, in: Naoyuki Yoshino & Peter J. Morgan (ed.), Central and Local Government Relations in Asia, chapter 9, pages 306-332, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:17640_9
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    2. Bessho, Shun-ichiro, 2021. "Local fiscal multipliers and population aging in Japan," Japan and the World Economy, Elsevier, vol. 60(C).
    3. Kameda, Taisuke & Namba, Ryoichi & Tsuruga, Takayuki, 2021. "Decomposing local fiscal multipliers: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 57(C).
    4. Peter J. Morgan & Long Q. Trinh, 2017. "Fiscal decentralization and local budget deficits in Viet Nam: an empirical analysis," Chapters, in: Naoyuki Yoshino & Peter J. Morgan (ed.), Central and Local Government Relations in Asia, chapter 10, pages 333-368, Edward Elgar Publishing.
    5. Bessho, Shun-ichiro & Hirota, Haruaki, 2023. "Do public account financial statements matter? Evidence from Japanese municipalities," European Journal of Political Economy, Elsevier, vol. 78(C).
    6. Shin-ichi Fukuda & Naoto Soma, 2021. "Evaluation of Japan’s Macro-Fiscal Policy and its Challenges," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 17(2), pages 1-28, November.
    7. Bessho, S., 2023. "Elections and COVID-19 benefit payments," Journal of Asian Economics, Elsevier, vol. 87(C).

    More about this item

    Keywords

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    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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