Good and Bad Fiscal Decentralization

Abstract

Japan’s system of centralized public finance is changing. The independence and responsibility of local governments are increasing. What remains lacking is “marginal fiscal responsibility,” which would see local residents bearing the costs of policies decided on by local governments themselves. The short chapters presented here deal with the status and problems of Japan’s system of fiscal transfers and property tax reform based on the principle of levying a benefit tax on local residents. The two essential factors for good fiscal decentralization are reform of the existing local allocation tax grants and reorganization of the local tax system. These reforms would ensure the fiscal responsibility of local residents and enhance efficiency. This would also contribute to fiscal reconstruction at the national level.