The Impact of Public Finance for Small Island Communities

Abstract

Government expenditures for small island communities (villages and towns) usually have little impact on economic development such as increase of production and employment. However, a good example of such positive effect is provided by Kitadaito island, which is an island village approximately 12 km2 lying 360 km away from the main island of Okinawa Prefecture. Kitadaito shows the highest per capita income in the entire prefecture and has almost full employment. This paper presents an investigation of relevant features of Kitadaito in order to determine the impact of public investment, particularly on agricultural improvement. The result of the investigation has implications for sustainable development.Procedures include usage of (1) the Cohort Method for projected population estimates, (2) Input-Output analysis for measurement of economic effects, including employment, and (3) an inhabitants-preference questionnaire for evaluating quality of life.Defining characteristics of Kitadaito economic development are found in: (1) high per capita public finance, (2) highest growth rate attributed to the agriculture sector, which is distinctive for (3) efficient mechanization of large-scale sugarcane farming.According to Input-Output Table Analysis for fiscal year 2000, the economic distribution of the 1.9 billion Yen public investment for production accounts for approximately 44% of value added figures and nearly 79% of employment within the village. Such figures indicate that the Kitadaito village economy is heavily dependent upon public investment.In fiscal year 2000, the population was 671 and public investment totaled 2.41 billion Yen. According to Cohort Method Estimates, the population may increase to 825 in fiscal year 2005, to 998 in fiscal year 2010, and to 1, 529 in fiscal year 2025. To accommodate this estimated population increase appropriately and equitably, public investment must necessarily increase by the following amounts: 555 million Yen for 2005 fiscal year, 1, 175million Yen for fiscal year 2010, and 3, 080million Yen for fiscal year 2025.The Koizumi cabinet is presently promoting a three-part structural reform rapidly and strongly. Such a reform will effectively bring about hardship for most local governments. In such an economic environment, increase in public investment for remote island villages is highly unlikely. The consequence of reduction in economic support for villages such as Kitadaito may be more than reversal of the recently established ideal development; it may be the complete impoverishment and depopulation of the island community.