TY - JOUR
T1 - Fiscal adjustment in Japanese municipalities
AU - Bessho, Shun ichiro
AU - Ogawa, Hikaru
N1 - Funding Information:
An earlier version of this paper was presented at APEA2013 and JEA2014 spring meeting, SRSA2014, UA&P in Philippines, Kobe and several universities. We would like to thank two anonymous referees, Masayoshi Hayashi, Toshihiro Ihori and Yohei Yamamoto for their helpful comments. The research has been supported by grants from JSPS Grants-in-Aid for Scientific Research (A) , Grant-in-Aid for Young Scientists (B) and the Kikawada Foundation .
Publisher Copyright:
© 2015.
Copyright:
Copyright 2015 Elsevier B.V., All rights reserved.
PY - 2015/11/1
Y1 - 2015/11/1
N2 - This study examines how Japanese municipalities restore their fiscal balance after a budget shock. The results show that these fiscal adjustments occur mainly via changes in government investment, accounting for 63-95% of adjustments in permanent unit innovations in grants and own-revenue. In contrast to the role of expenditure, the municipalities' own-source revenue plays a limited role in balancing the local budget. The results also reveal that 40% of the increase in own-source revenue is offset by a reduction in grants. This suggests that the current grants system discourages municipalities from increasing their own-source revenue. Furthermore, municipalities can induce grants by expanding government current expenditure. Here, a 1. yen increase in current expenditure is followed by an increase in grants of 0.65. yen in subsequent years. Finally, we conduct an additional analysis based on population size to study how the adjustment process varies among municipalities of different sizes.
AB - This study examines how Japanese municipalities restore their fiscal balance after a budget shock. The results show that these fiscal adjustments occur mainly via changes in government investment, accounting for 63-95% of adjustments in permanent unit innovations in grants and own-revenue. In contrast to the role of expenditure, the municipalities' own-source revenue plays a limited role in balancing the local budget. The results also reveal that 40% of the increase in own-source revenue is offset by a reduction in grants. This suggests that the current grants system discourages municipalities from increasing their own-source revenue. Furthermore, municipalities can induce grants by expanding government current expenditure. Here, a 1. yen increase in current expenditure is followed by an increase in grants of 0.65. yen in subsequent years. Finally, we conduct an additional analysis based on population size to study how the adjustment process varies among municipalities of different sizes.
KW - Dynamic fiscal adjustment
KW - Municipal policy
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U2 - 10.1016/j.jce.2014.10.007
DO - 10.1016/j.jce.2014.10.007
M3 - Article
AN - SCOPUS:84949647738
VL - 43
SP - 1053
EP - 1068
JO - Journal of Comparative Economics
JF - Journal of Comparative Economics
SN - 0147-5967
IS - 4
ER -