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Ending the race for return gifts: Do gift caps in the Furusato Nozei program work?

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  • Yusuke Makino

    (Graduate School of Economics, The University of Tokyo)

  • Hikaru Ogawa

    (Faculty of Economics, The University of Tokyo)

Abstract

This paper examines the effects of a regulation aimed at mitigating competition among municipalities to attract donations by offering return gifts under Japan’s Furusato Nozei program. The main theoretical finding is as follows: when a cap is imposed on the return gift rate for donations, both regulated and unregulated municipalities reduce their return gift rates, thereby lessening competition. However, the reduction in return gift rates induced by the cap may incentivize municipalities that had previously refrained from competing to newly enter the competition, potentially intensifying overall competition. A comparison of descriptive data before and after the introduction of the regulation reveals that municipal responses are consistent with the theoretical predictions.

Suggested Citation

  • Yusuke Makino & Hikaru Ogawa, 2025. "Ending the race for return gifts: Do gift caps in the Furusato Nozei program work?," CIRJE F-Series CIRJE-F-1254, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2025cf1254
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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2025/2025cf1254.pdf
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    References listed on IDEAS

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    1. Eiji Yamamura & Yoshiro Tsutsui & Fumio Ohtake, 2025. "Correction: An analysis of altruistic and selfish motivations underlying hometown tax donations in Japan," The Japanese Economic Review, Springer, vol. 76(3), pages 689-690, July.
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    4. Fukasawa, Eiji & Fukasawa, Takeshi & Ogawa, Hikaru, 2020. "Intergovernmental competition for donations: The case of the Furusato Nozei program in Japan," Journal of Asian Economics, Elsevier, vol. 67(C).
    5. Hongbin Cai & Daniel Treisman, 2005. "Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy," American Economic Review, American Economic Association, vol. 95(3), pages 817-830, June.
    6. Buettner, Thiess & Poehnlein, Maximilian, 2024. "Tax competition effects of a minimum tax rate: Empirical evidence from German municipalities," Journal of Public Economics, Elsevier, vol. 236(C).
    7. Yuya Kikuchi, 2021. "Entry in Tax Competition and Intergovernmental Transfer," Economics Bulletin, AccessEcon, vol. 41(4), pages 2445-2450.
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    Cited by:

    1. Yusuke Makino & Hikaru Ogawa, 2025. "How the 30% Cap Reshapes Competition for Donations in Japan’s Furusato Nozei Program," CIRJE F-Series CIRJE-F-1258, CIRJE, Faculty of Economics, University of Tokyo.

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