Discussion Papers 2025

CIRJE-F-1253	"Ending the race for return gifts: Do gift caps in the Furusato Nozei program work?"
Author Name	Makino, Yusuke and Hikaru Ogawa
Date	July 2025
Full Paper	PDF file
Remarks

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.
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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.

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