"Does Local Spending Have Repercussion from Tax Structure? -Evidence from Japan-"

Mochida, Nobuki

The original intention of this article is to explore what are the driving forces for the local tax structures. Is tax policy determining the local expenditure portfolio, or is the relationship the other way around? We expect some research venturing to explore the interplay between the local expenditure responsibilities and tax policy. This article examines these fresh issues in the light of Japan's recent experiences, and tries to bring not only analytical framework but also qualify information on local tax structures. The motivation is that we can test causality through regression models using the notion of Granger causality.

So far it is often said that expenditure has not been decided by making tax revenue given, instead expenditure may be decided for a certain reason and for financing it corresponding revenue is 'guaranteed' in Japan. As local public sector has evolved from 'agency' model to 'autonomy' model, this stereotypical way of thinking will come into question. This article shows that it is possible to have some repercussions from the tax structure to expenditures.