Discussion Papers 2025

CIRJE-F-1258	"How the 30% Cap Reshapes Competition for Donations in Japan’s Furusato Nozei Program"
Author Name	Makino, Yusuke and Hikaru Ogawa
Date	September 2025
Full Paper	PDF file
Remarks

Abstract
Under Japan’s Furusato Nozei program, a 30% cap on return gifts was introduced to curb inter-municipal competition for donations. This paper analyzes the effects of the cap in a setting where municipalities compete not only through the value of return gifts subject to the regulation but also by employing other strategies to attract donors. The results show that while the cap suppresses gift-based competition, it may intensify competition through other channels, making overall outcomes ambiguous. The negative effects of introducing the 30% cap are more likely when donors value giving less, donations are less sensitive to gift return rates, or alternative strategies are highly effective.
Keywords: Interregional fiscal competition; Donation; Regulatory ceiling

Abstract

Under Japan’s Furusato Nozei program, a 30% cap on return gifts was introduced to curb inter-municipal competition for donations. This paper analyzes the effects of the cap in a setting where municipalities compete not only through the value of return gifts subject to the regulation but also by employing other strategies to attract donors. The results show that while the cap suppresses gift-based competition, it may intensify competition through other channels, making overall outcomes ambiguous. The negative effects of introducing the 30% cap are more likely when donors value giving less, donations are less sensitive to gift return rates, or alternative strategies are highly effective.

Keywords: Interregional fiscal competition; Donation; Regulatory ceiling