IDEAS home Printed from https://ideas.repec.org/p/ris/adbiwp/0599.html
   My bibliography  Save this paper

Case Study of Central and Local Government Finance in Japan

Author

Listed:
  • Bessho, Shun-ichiro

    (Asian Development Bank Institute)

Abstract

This paper 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% 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 study also reveal that 40% 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 study offers and discusses some policy implications.

Suggested Citation

  • Bessho, Shun-ichiro, 2016. "Case Study of Central and Local Government Finance in Japan," ADBI Working Papers 599, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0599
    as

    Download full text from publisher

    File URL: https://www.adb.org/sites/default/files/publication/199446/adbi-wp599.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    2. Pesaran, M. Hashem & Vanessa Smith, L. & Yamagata, Takashi, 2013. "Panel unit root tests in the presence of a multifactor error structure," Journal of Econometrics, Elsevier, vol. 175(2), pages 94-115.
    3. Schoppa, Leonard J., 1993. "Two-level games and bargaining outcomes: why gaiatsu succeeds in Japan in some cases but not others," International Organization, Cambridge University Press, vol. 47(03), pages 353-386, June.
    4. Tajika, Eiji & Yui, Yuji, 1996. "Public Policies and Capital Accumulation: Japan at the Dawn of Economic Growth," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 37(2), pages 135-153, December.
    5. Anita Tuladhar & Markus Bruckner, 2010. "Public Investment as a Fiscal Stimulus; Evidence from Japan’s Regional Spending During the 1990s," IMF Working Papers 10/110, International Monetary Fund.
    6. Navon, Guy, 2006. "Budgetary Dynamics in The Local Authorities in Israel," MPRA Paper 9707, University Library of Munich, Germany.
    7. Shun-ichiro Bessho, 2010. "Implementation of public works and intergovernmental relationships in Japan," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(1), pages 167-198, February.
    8. Isabelle Joumard & Per Mathis Kongsrud, 2003. "Fiscal Relations across Government Levels," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 155-229.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Morgan, Peter & Long, Trinh Q., 2016. "Fiscal Decentralization and Local Budget Deficits in Viet Nam: An Empirical Analysis," ADBI Working Papers 613, Asian Development Bank Institute.

    More about this item

    Keywords

    Japan; local government; administrative system; local public finance; local revenue; fiscal shock; fiscal balance; tax system; “flypaper effect”;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:adbiwp:0599. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ADB Institute). General contact details of provider: http://edirc.repec.org/data/adbinjp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.