The Growth and Stability of the Local Tax Revenue in Japan

Public Budgeting and Finance

Volumn 31, Issue 1, 2011, Pages 56-75

  Ishida, Kazuyuki ^a  

^a UNIVERSITY OF TOKUSHIMA   (Japan)

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EID: 79952396624     PISSN: 02751100     EISSN: 15405850     Source Type: Journal    
DOI: 10.1111/j.1540-5850.2011.00974.x     Document Type: Article

References (38)

1. For example, Tokushima prefecture reduced its tax revenues by about 30 percent in fiscal year 2008. "Prefecture" means the upper level of local government in Japan. See "The Structure of the Local Tax Revenue in Japan."
2. In fiscal year 2008, in sanitation expenses, the percentage share of the local government among the total amount of the central government and the local government accounted for 94 percent. The school education expenses accounted for 85 percent, social education expenses accounted for 77 percent, and police and fire service expenses accounted for 79 percent. See Ministry of Internal Affairs and Communications. "White Paper on Local Public Finance," 2010; available from:
3. In 2010, the percentage of 65 years old and over population in total amount is 22.7 percent in Japan. This percentage is the highest among the developed countries. See Ministry of Internal Affairs and Communications, Statistics Bureau, Director-General for Policy Planning (Statistical Standards) & Statistical Research and Training Institute "Population Estimates," 2010; available from:
4. In fiscal year 2008, the percentage share of the local tax revenue accounted for 42.9 percent of total revenue, the local transfer tax revenue accounted for 0.7 percent, the special local grants accounted for 0.6 percent, the local allocation tax accounted for 16.7 percent, the national treasury disbursements accounted for 12.7 percent, the local bonds accounted for 10.8 percent, and other revenue resources accounted for 15.6 percent.
5. Local tax criteria shown in Table 1 are cited from "The Present Situation in the Local Tax System and the Real State of its Management" edited by the Institute of Local Finance (Chihouzaimukyokai, 2009). In Japan, this is accepted as an official statement by the local tax authority (Ministry of Internal Affairs and Communications).
6. The desirability of stability is essentially the difference from the desirability of growth. The argument for a stable tax revenue seems more defensible, while the argument for the growth tax revenue rests on the assumption that it is desirable to have the government take a larger share of income. Whether the growing tax revenue is desirable or not is a normative argument. This paper does not deal with such a normative discussion. Instead, this paper estimates the growth and stability of the local tax revenue, which is expected by the central government, and finds the fact whether the local tax revenue is stable/growth or not.
7. See Figures 1 and 3 in the next section.
8. Jonathan Haughton, "Estimating Tax Buoyancy, Elasticity and Stability," Eager/Psge-Excise Project, Methodological Note 1, 1998.
9. F. C. White, "Trade-Off in Growth and Stability in State Taxes," National Tax Journal 36 (1983): 103-114.
10. Harold M. Groves and C. Harry Kahn, "The Stability of State and Local Tax Yields," American Economic Review 42, 2 (1952): 87-102
11. Russell S. Sobel and Randall G. Holcombe, "Measuring the Growth and Variability of Tax Bases Over the Business Cycle," National Tax Journal 49 (1996): 535-552
12. Moses Acquaah and Alexander M. G. Gelardi, "The Growth and Stability of Revenue in British Columbia, Canada," Journal of Business and Economic Studies 14, 2 (2008): 39-59.
13. See Sobel and Holcombe (1996).
14. See Acquaah and Gelardi (2008).
15. See Sobel and Holcombe (1996).
16. Local Tax Act permits local governments to levy nonstatutory taxes, but the revenue from nonstatutory taxes is negligible small.
17. The tax rate, which the Local Tax Act decides is called the standard rate. The local government can use the higher rate than standard rate. The local government, however, does not change the tax rate according to the expenditure in each year.
18. The tax rate of the Individual Prefectural Residents Tax is a flat rate, although that of national income tax is a progressive rate. The minimum level of taxable income of the Individual Prefectural Residents Tax is lower than that of the national income tax.
19. See Groves and Kahn (1952).
20. See Sobel and Holcombe (1996).
21. See Acquaah and Gelardi (2008), 53.
22. R. F. Dye, "State Revenue Cyclicality," National Tax Journal 57 (2004): 33-145.
23. See Acquaah and Gelardi (2008).
24. See Sobel and Holcombe (1996).
25. See Acquaah and Gelardi (2008).
26. It is known that the ß coefficient obtained from equation (1) will be asymptotically biased with inconsistent standard errors. However, it has been shown that the results are not different from using the more sophisticated dynamic ordinary least squares (DOLS) method with Newey-West correction, which eliminate the bias; R. G. Holcombe and R. S. Sobel., Growth and Variability in State Tax Revenue: An Anatomy of Fiscal Crises (Westport, CT: Greenwood Press, 1997), Sobel and Holcombe (1996). Most previous studies have used equation (1) to estimate the long-run elasticity of tax revenue. Acquaah and Gelardi (2008) have also used equation (1), citing the following phrase in Sobel and Holcombe (1996), the results are "not severely biased and are still of value as measures of long-run potential" (Acquaah and Gelardi, 2008: 45). Thus, we estimate the long-run elasticity by using equation (1).
27. See also Sobel and Holcombe (1996), Acquaah and Gelardi (2008).
28. See Acquaah and Gelardi (2008).
29. See also Holcombe and Sobel (1997), Dye (2004), Acquaah and Gelardi (2008).
30. See Ministry of Internal Affairs and Communications "Statistical Reference Materials about Local Tax," 2009; available from:
31. See Ministry of Internal Affairs and Communications, Statistics Bureau, Director-General for Policy Planning (Statistical Standards) & Statistical Research and Training Institute "Report on the Consumer Price Index: Historical Data," 2010; available from:
32. In Japan, the GDP is defined and calculated based on the System of National Account (SNA), which is the international statistical standard for the measurement of the market economy and set by the United Nations. See Economic and Social Research Institute, Cabinet Office, Government of Japan, "Annual Report on National Accounts," 2009.
33. Prefectural Residents Tax on Interests has been levied from 2003. This paper does not estimate the elasticity of Prefectural Residents Tax on Interest, because the taxation period of this tax is short and the tax revenue from this tax is small.
34. See Sobel and Holcombe (1996).
35. See also Acquaah and Gelardi (2008).
36. See also Sobel and Holcombe (1996).
37. See also Acquaah and Gelardi (2008).
38. This system is called "burden adjustment measures."