Decentralization Reform and Property Tax in Japan: A Consideration of the Benefit Principle

Abstract

This chapter reviews the relationship between property tax and the benefit principle in Japan. Based on Miyazaki and Sato (2011), the author first demonstrates that property tax is not a benefit tax for the supply side because the conditions for tax capitalization, one of the foundations of the “benefit view” with regard to property tax, cannot be satisfied under Japan’s current local taxation system. This should be attributed to three factors: limitation of the authority of municipalities to set tax rates, certain preferential property tax programs for land, and the possibility that property tax is a capital tax in effect. The author proposes granting municipalities complete discretion in deciding tax rates and repealing preferential tax programs to make property tax function as a benefit tax.