The Adoption, Transformation and Institutionalization of the Kaso Concept and Local Allocation Tax

Abstract

Today, has gained a prominent position as a popular policy concept for less favored problems in the rural areas of Japan. At the same time, many commentators have criticized the concept for its inadequacy as an academic term thus far. Nevertheless, the reason why gained such popularity in both central and local governments so quickly or why a area come to be operationally defined by the municipal depopulation rate has rarely been discussed. The purpose of this paper is to present a thesis that addresses these questions from the viewpoint of local public finance problems, focusing especially on local allocation taxes, a Japanese fiscal equalization scheme.Kaso emerged as an appealing catchphrase to describe rural social problems in the mid 1960s. This term is the opposite of kamitsu which represents the overpopulation problems experienced in metropolitan areas. The opportunity for this term's gaining popularity came after the release of the 1965 census data, which clarified the quantitative realities of depopulation in peripheral areas.Previous studies argued that the release of census data had a strong impact on the populace in regard to the severity of the depopulation problem and this led to the quick permeation of this term. The author believes this to be partly true but thinks that it is insufficient to explain the outcomes. It is argued that this situation has had the most significant impact on national and local government officers since the announcement of the latest census results requires the renewal of statistics used for the fiscal demand calculation of local allocation taxes. According to an estimation using a weighted regression model, given an unchanged local allocation tax system and assuming price constancy, about one third of municipalities with less than 5, 000 inhabitants were anticipated to face more than a 10% decrease of standard fiscal demand. This figure represents the amount of resources ensured by the local allocation tax for each local government as an operationally calculated cost for executing standard administrative activities.This dysfunction of the fiscal equation scheme in severely depopulated municipalities is thought to be the most important factor for the permeation of into central and local governments. The central government quickly established a depopulation modification coefficient (jinkou kyugen hosei) in standard fiscal demand calculations in 1966. In addition, Shimane Prefecture, an area facing this problem, started to develop a Special Area Act for the national government in cooperation with the Prefectures concerned.At the beginning, the area name in the proposed Act is known as a severe depopulation area, not a Kaso area because depopulation is directly connected with the local allocation tax problem. However, the national government started to stress the solving of regional disparities and responded by shifting target areas in resource allocation from metropolitan areas and industrial districts to peripheral areas after the mid 1960s. Following this shift, the Special Area Act movement sought not only to maintain the status quo but also to make the rest of the country catch up, and changed the area name to for its popularity and comprehensiveness.In this change, an operational definition of a area had to be defined. Considering that the starting point of this movement exists in a dysfunctional problem of local allocation tax, it seemed natural to define a area in the proposed Act using the municipal depopulation rate. Finally, the Emergency Area Revitalization Act, which designates its target area by the municipal depopulation rate, came into effect as a members' bill in 1970.