Abstract
This chapter considers three issues in relation to the two functions of Japan’s local allocation tax grants—the function of guaranteeing fiscal resources and the function of enabling fiscal equalization. The first of these issues is the significance and the level of the guarantee of fiscal resources: the mechanism by which the government obliges local administrations to provide specified public services, and its relationship with cost-cutting measures. The second issue is the definition of fiscal capability and the index employed to determine fiscal capability. The third is the relative positioning of local governments which do not receive allocation tax grants. Disparities between municipalities increase conspicuously with an increase in local fiscal resources. This chapter discusses the introduction of an alternative system of negative allocation tax grants.
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