DECENTRALIZATION AND CHANGING FISCAL RULES IN THE JAPANESE LOCAL PUBLIC-SECTOR

This research examines the relationship between the structure of the local public sector and its size in the absence of legal fiscal autonomy. Changes in this relationship are indicative of changes in the fiscal rules constraining local governments, in the sense that they are consistent with certain policies but not with others. This analysis focuses on the Japanese local public sector in the period 1978-88, a decade of substantial interest in decentralization as well as concern about local and central government deficits. Our empirical results are consistent with those that would result from a policy to enhance the revenue-raising ability of the local public sector. The results are not consistent with general decentralization. This complements analyses based solely on examining legislative and administrative changes, which are inconclusive.