| Budget Amount *help |
¥1,350,000 (Direct Cost: ¥1,200,000、Indirect Cost: ¥150,000)
Fiscal Year 2007: ¥650,000 (Direct Cost: ¥500,000、Indirect Cost: ¥150,000)
Fiscal Year 2006: ¥700,000 (Direct Cost: ¥700,000)
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| Research Abstract |
I composed a model by which the relative merits of decentralization and centralization can be evaluated. A centralized fiscal regime can implement cost-sharing between districts with diverse productivity levels, and further allows internalization of interregional benefit spillovers from the provision of local public goods. The centralized fiscal regime is, however, assumed to be inferior, in that citizens suffer on losing autonomy. The key features of this model are its incorporation of interregional dependencies and dynamic linkages. In each period, representatives decide on a proportional income tax rate ; this decision determines the level of a local public good and affects future income levels in both districts, which in turn affect future local public good levels. The decisions made by representatives also depend on the extent to which they take into account intergenerational benefit spillovers from a local public good.
A key finding of this analysis is that a decentralized(central
… More
ized) fiscal regime is more likely to be unanimously preferred when the interregional disparity in productivity is small(large) and the extent of interregional benefit spillovers is low(high). When a great deal of benefit spills over from a local public good, financially supporting a low-productivity district is also beneficial to a high-productivity district. It was also found that even with full interregional spillovers, decentralization is more likely to be promoted when policy-makers have sufficient foresight and consider future generations in making their decisions. Farsighted policy-makers allow for long-term benefits due to the increased income of other districts even under a decentralized system, and this effect suppresses the usual welfare loss caused by decentralization. In other words, when each policy-maker is expected to make a decision when caring only about its immediate effects, an institution to promote policy coordination among districts will be established. These results therefore predict progress towards decentralization in an environment with fiscal equalization policies and foresighted politicians.
Thus, my model analysis shows conditions subject to which a certain decision-making system-e.g., a centralized or decentralized local finance system in the nation, or an international institution for cooperative solution of environmental or security problems-can be established. Less
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