The Analysis of Soft Budget Constraints in Local Allocation Tax: Determination of Hosei-keisu in Ordinary Expenditure(in Japanese)

It is pointed out that Local allocation tax (LAT), an intrinsic local revenue source aimed at offsetting and balancing the disparity between local governments, relates to efforts to increase tax revenue and mitigate expenditure. This work investigates whether local governments confront Soft budget constraints (SBCs) in control of Hosei-keisu, one of methods to allocate LAT, and it ensures revenue so that local governments can secure their expenses in whatever region. Two main results are obtained. First, in Elementary school and Public hygiene and sanitation expenses, local governments whose rate of divergence between realized expenses and estimated costs to estimated ones is large receive a large amount of LAT by means of Hosei-keisu. Second, the rate of divergence positively correlates an amount of LAT by Hosei-keisu when it has an important role of adjusting fiscal disparities among local governments.