Local public finance in Japan Jumhichiro Yonehara

Local public finance in Japan Jumhichiro Yonehara Centre for Research on Federal Financial Relations The Australian National University, Canberra Research Monograph No. 36

Local public finance in Japan Junshichiro Yonehara Though Japan has come to play a considerable part in the world economy, little is known in Western countries of its arrangements in the field of local public finance. This monograph is intended to fill this gap. It investigates the whole area of local public finance in Japan, at both the prefectural and municipal levels, including expenditure responsibilities, taxation powers and the different kinds of intergovernmental grants arrangements. As Japan is a unitary country, the central government has strong controlling powers over both levels of local government. Professor J. Yonehara completed his undergraduate and graduate degrees in economics at = Osaka University, and from 1964 to March 1980 held a teaching appointment in the Economics Department of that University. He is currently Professor of Economics at Hiroshima University. Professor Yonehara is the author of several books and journal articles on local public finance and related fields of economics. He has advised the Ministry of Home Affairs, prefectural governments and municipalities on matters of government finance. «, Distributed by ANU Press PO Box 4 Canberra ACT 2600 Australia Designed by ANU Graphic Design ISBN 0 908160 89 5 ISSN 0313-5969

This book was published by ANU Press between 1965 1991. This republication is part of the digitisation project being carried out by Scholarly Information Services/Library and ANU Press. This project aims to make past scholarly works published by The Australian National University available to a global audience under its open-access policy.

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Local public finance in Japan Jumhichiro Yonehara Research Monograph No. 36 Centre for Research on Federal Financial Relations The Australian National University, Canberra, 1981 Distributed by ANU Press, Canberra,Australia, London, England, and Miami, Florida, USA

F i r s t p u b lish e d in A u s tr a lia 1981 P rin te d in A u s tr a lia f o r th e C en tre f o r R esearch on F e d e ral F in a n c ia l R e la tio n s, C an b erra. J u n s h ic h iro Yonehara 1981 T his book i s c o p y rig h t. A part from any f a i r d e a lin g f o r th e purpose of p r iv a te stu d y, r e s e a r c h, c r i t i c i s m, or rev iew, a s p e rm itte d under the C o pyright A ct, no p a r t may be reproduced by any p ro c e ss w ith o u t w r itte n p e rm issio n. I n q u ir ie s should be made to the p u b lis h e r. N a tio n a l L ib ra ry of A u s tr a lia C a ta lo g u in g -in -P u b lic a tio n e n try Y onehara, J u n s h ic h iro, 1932- Local p u b lic fin a n c e in Japan. ISBN 0 908160 89 5. 1. L ocal fin a n c e - Jap an. I. A u s tr a lia n N a tio n a l U n iv e rs ity. C en tre fo r R esearch on F e d e ra l F in a n c ia l R e la tio n s. I I. T i t l e (S e rie s : R esearch monograph (A u s tra lia n N a tio n a l U n iv e rs ity. C en tre fo r R esearch on F e d e ra l F in a n c ia l R e la tio n s ) ; n o.36 ). 336'.0 1 4 '5 2 L ib ra ry of C ongress C a talo g Card Number 80-68801 Printed by Canberra Reprographic Printers, 119 Wollongong St, Fyshwick, A.C.T. 2609

The C en tre fo r R esearch on F e d e ra l F in a n c ia l R e la tio n s The C e n tre was e s ta b lis h e d by the A u s tr a lia n N a tio n a l U n iv e rsity in 1972, w ith f i n a n c ia l su p p o rt from th e A u s tr a lia n Government, fo r the purpose of u n d erta k in g s tu d ie s in th e f i e l d of f e d e r a l f i n a n c ia l r e l a t i o n s. The r o le of the C en tre i s to g e n e ra te id e a s in r e la ti o n to problem s of f e d e r a l fin a n c e and to extend th e r e l i a b i l i t y and ran g e of in fo rm a tio n and a n a ly s is. In p a r t i c u l a r, th e work of th e C en tre h as re g a rd to e x p e n d itu re r e s p o n s i b i l i t i e s, f i n a n c ia l powers (w ith r e s p e c t to b o th ta x a tio n and loan f in a n c e ), g ra n ts arran g em en ts and th e scope f o r in te rg o v e rn m e n ta l c o - o p e r a tio n. The D ir e c to r of the C en tre (P ro fe ss o r R.L. Mathews) i s a d v ised by a R esearch A dvisory Com m ittee, the membership of which r e f l e c t s th e i n t e r e s t s of the A u s tr a lia n, S ta te and lo c a l governm ents and in c lu d e s members of o th e r u n i v e r s i t i e s. P ro fe s s o r S ir Bruce W illiam s i s Chairman of th e Com mittee. A lthough the C e n tr e 's work i s co n cern ed e s p e c ia lly w ith in te rg o v e rn m e n ta l f i n a n c ia l r e la ti o n s h ip s, the approach i s i n t e r d i s c i p l i n a r y and in v o lv e s s c h o la rs from th e f i e l d s of c o n s t it u t io n a l law, p o l i t i c a l sc ie n c e and a d m in is tr a tiv e s tu d ie s a s w e ll as econom ics. The C entre has only a sm all perm anent s t a f f and much of the re s e a rc h program i s b ein g c a r r ie d out by v i s i t i n g fe llo w s, s c h o la rs in o th e r i n s t i t u t i o n s a s s i s t e d by re se a rc h g ra n ts from th e C e n tre, and p o s tg ra d u a te s c h o la r s. The r e s u l t s of re s e a rc h a r e b e in g p u b lish e d in books, re se a rc h monographs, o c c a sio n a l p a p e rs and a r e p r i n t s e r i e s (see end p a g e s ). Views e x p ressed in the C e n tr e 's p u b lic a tio n s a re th o se of in d iv id u a l a u th o rs and no endorsem ent by the C en tre or by th e U n iv e rsity i s im p lied. v

AUTHOR'S PREFACE This monograph is a review of local public finance in Japan. Owing to its rapid economic growth, Japan has become a major industrial country which, because of its economic links with other countries, needs to be well understood by people in those countries. But Japan is not a country which is easy to understand. There is a wide difference in cultural background as between the people in modem Western countries and the people of Japan. Family relationships, social conditions and the economic system also differ greatly, while the peculiarities of the Japanese language inhibit mutual understanding. If this monograph should help Australians and other English-speaking people in their understanding of Japan (and especially of local public finance in Japan), the author's work at the Centre for Research on Federal Financial Relations in the Australian National University will have been rewarded. The Centre provided an ideal professional environment for writing the monograph and the author records his thanks to those who assisted him in preparing it. Professor Russell Mathews, Director of the Centre, arranged for the author to receive a Visiting Fellowship and helped to make his visit both fruitful and enjoyable. Professor Mathews, Ms P. de Lacy and Mr W.R.C. Jay read the whole of the original draft and made many valuable comments which helped to improve the style and content of the monograph. However, any errors or weaknesses which remain are the responsibility of the author. Mr T. Koike of the Embassy of Japan in Australia was also of great assistance. He not only provided information about practical aspects of local public finance in Japan, but also made available the whole of the Appendices. Junshichiro Yonehara ACKNOWLEDGMENTS The Centre for Research on Federal Financial Relations records its appreciation to ANU Graphic Design for designing the cover of this Monograph, to Ms P.A. de Lacy for typing the manuscript, to Mrs A.M. Wilkinson for her editorial work and to Mrs V.J. Murray for making the necessary publication arrangements. May 1981 R.L. Mathews

CONTENTS Chapter Page Foreword A u th o r's P re fa c e Acknowledgments T ab les and F ig u re s v v i v i x i I STRUCTURE OF GOVERNMENT IN JAPAN 1 P r e f e c tu r e s and M u n ic ip a litie s 1 In terg o v e rn m e n tal D iv isio n of F u n c tio n s 2 In terg o v e rn m e n tal R e la tio n s in Japan 2 Types of L ocal Government A c tiv ity : D eleg ated and E n tru s te d 3 Mandamus 4 I I REVENUES OF LOCAL GOVERNMENT 5 SOURCES OF REVENUE 5 L ocal Taxes 6 L ocal T ra n s fe r Taxes 6 L ocal A llo c a tio n Tax 7 P r e f e c tu r a l Tax Revenue T ra n s fe rre d to M u n ic ip a litie s 7 B e n e f i c i a r ie s ' C o n trib u tio n Towards Improvement 7 Fees and C harges 8 S p e c ific Purpose G rants by the N a tio n a l Government 8 S p e c ia l T r a f f ic S afety G rant 8 P r e f e c tu r a l S p e c ific Purpose G ran ts 8 Revenue from P ro p e rty 9 D onations 9 L ocal Loans 9 M isc e lla n eo u s 9 CLASSIFICATION OF REVENUES 9 G eneral Revenues and S p e c ific Purpose Revenues 9 I I I OUTLAYS OF LOCAL GOVERNMENT 11 CLASSIFICATION OF OUTLAYS BY FUNCTION 11 L ocal Assembly H G eneral A d m in istra tio n 12 S o c ia l W elfare and S o c ia l S e c u rity 12 H ealth and S a n ita tio n 12 Labour R e la tio n s 13 A g r ic u ltu r e, F o re stry and F is h e r ie s 13 Commerce and In d u stry 13 P u b lic Works 13 F ir e P r o te c tio n 14 vii

Chapter Page Police 14 Education 14 Debt Charges 14 Miscellaneous 14 CLASSIFICATION OF OUTLAYS BY ECONOMIC CATEGORIES 15 Wages and Salaries 15 Non-Personal Current Expenditure 16 Repairs and Maintenance 16 Personal Allowances 16 Subsidies 16 Capital Outlays 17 Ordinary Capital Outlays 17 Other Capital Outlays 17 Debt Charges 17 Transfers to Reserves 17 Loans 17 Miscellaneous 17 INDICES OF BUDGETARY CONDITION 18 Unavoidable Outlays and Discretionary Outlays 18 The Ratio of Recurrent Expenditure to Normal Revenue 18 IV LOCAL TAXES 20 OUTLINE OF THE LOCAL TAXATION SYSTEM 20 Transfers of Tax Revenue 20 Outline of the Tax System 21 Autonomy in Local Taxation 22 THE PRINCIPAL LOCAL TAXES: ORDINARY TAXES 23 The Inhabitant Tax on Individuals 26 Inhabitant Tax on Corporations 26 Business Tax 27 Fixed Property Tax 27 Other Local Taxes (Ordinary Taxes) 28 Real Property Acquisition Tax 28 Prefectural Fixed Property Tax 28 Tobacco Consumption Tax 29 Taxes on Motor Vehicles 29 Entertainment Tax 29 Dining and Drinking Tax 29 Electricity Tax 30 Gas Tax 30 Taxes on Mining 30 Hunter's Registration Tax 30 Timber Delivery Tax 30 Special Land-Holding Tax 31 Non-Listed Taxes 31 SPECIFIC PURPOSE OR EARMARKED TAXES 32 Motor Vehicle Acquisition Tax 32 Light Oil Delivery Tax 32 Hunting Tax 32 Spa Tax 32 City Planning Tax 33 Business Office Tax 33 Improvement Tax 33 viii

Chapter Page ABOLISHED TAXES 33 V THE LOCAL ALLOCATION TAX (TAX SHARING GRANTS) 34 PURPOSE OF THE LOCAL ALLOCATION TAX 34 Equalisation of Fiscal Capacity 34 Ensuring Adequacy of Revenue 34 Guidelines for Local Public Finance 36 STRUCTURE OF THE LOCAL ALLOCATION TAX 36 Determination of the Amount of the Local Allocation Tax 36 The Ordinary Allocation Tax and the Special Allocation Tax 37 Computation of the Ordinary Allocation Tax 37 BASIC FINANCIAL NEEDS 38 Concept of Basic Financial Needs 38 Computation of Basic Financial Needs 39 Modification Coefficients 40 (a) Class Modification Coefficients 40 (b) Size Modification Coefficients 40 (c) Density Modification Coefficients 40 (d) Modification Coefficients for Special Factors 40 (e) Modification Coefficients Applied to Cold Areas 41 (f) Modification Coefficients to Allow for Rapid Population Growth 41 (g) Modification Coefficients Related to a Rapid Decrease in Unit of Measurement 42 (h) Modification Coefficients Related to Financial Capacity 42 Unit Cost 42 BASIC REVENUE 42 VI SPECIFIC PURPOSE GRANTS BY THE NATIONAL GOVERNMENT 44 INTRODUCTION OF SPECIFIC PURPOSE GRANTS 44 Objectives of Specific Purpose Grants 44 RELATIVE IMPORTANCE OF SPECIFIC PURPOSE GRANTS 45 Specific Purpose Grants in the Budgets of Local Governments 45 Distribution of Specific Purpose Grants 45 TYPES OF SPECIFIC PURPOSE GRANTS 45 The National Government's Contribution 47 The National Government's 100 Per Cent Payment 47 The National Government's Subsidy 48 DISBURSEMENT OF SPECIFIC PURPOSE GRANTS 48 The Rate of Subsidy 48 Calculation of Specific Purpose Grants 49 Applications for Specific Purpose Grants 49 ix

Chapter Page VII LOCAL GOVERNMENT BORROWING 51 INTRODUCTION 51 Traditional Attitude to Borrowing 51 Recent Developments in Local Debt Policy 51 LIMITATIONS ON LOCAL LOAN RAISING 53 Local Loan Program 53 Legal Restrictions on the Use of Loan Funds 53 Permission to Raise Loans 54 SOURCES OF FUNDS FOR LOCAL LOANS 54 Funds from Foreign Countries 54 Funds from the National Government 55 Funds from Private Financial Institutions 55 Funds from the Public Enterprise Loan Corporation 55 Funds from the Bond Market 55 Use of Bonds to Meet Obligations 55 VIII CONCLUSION 57 NATIONAL CONTROL OR LOCAL AUTONOMY 57 PROBLEMS CONCERNING THE GRANT SYSTEM 58 REVISION OF THE LOCAL TAX SYSTEM 59 PROBLEMS CONCERNING LOCAL LOANS 60 APPENDIX 1: Provisions Governing the Basic Character of Local Public Bodies (Local Governments) 64 APPENDIX 2: Provisions Governing the Budgetary Procedure of Local Public Bodies 70 APPENDIX 3: Provisions Governing the Local Allocation Tax 79 APPENDIX 4: Provisions Governing Specific Purpose Grants by the National Government 97 APPENDIX 5: Provisions Governing Local Loans 104 APPENDIX 6: Provisions Governing Large Cities 107 APPENDIX 7: The Local Road Transfer Tax 110 x

TABLES AND FIGURES Table Page II-l Revenues of Prefectures and Municipalities, 1975 5 III-l III-2 IV-1 IV-2 Functional Classification of Local Government Outlays: 1975 Fiscal Year 11 Economic Classification of Local Government Outlays: 1975 Fiscal Year 15 Transfers of Tax Revenue Between National and Local Government: 1975 Fiscal Year 20 Tax Revenue of National, Prefectural and Municipal Governments: 1975 Fiscal Year 21 IV-3 Prefectural Tax Revenue by Source: 1975 Fiscal Year 24 IV-4 Municipal Tax Revenue by Source: 1975 Fiscal Year 25 V-l Fiscal Equalisation at the Municipal Level: 1975 Fiscal Year 35 VI-1 Distribution of Specific Purpose Grants: 1975 Fiscal Year 46 VI-2 Examples of Rates of Specific Purpose Grants 48 Figure VII-1 Proportion of Local Loans in the Receipts of Local Governments 52 xi

I STRUCTURE OF GOVERNMENT IN JAPAN Prefectures and Municipalities As is the case in many other countries, Japan has three levels of government: the national government, prefectural governments and municipal governments. At the highest level government, the national government has responsibilities which extend over the whole of Japan. The country is divided into prefectures, 1 each of which has its own prefectural government. The prefectures form the second level of government. Before World War II, the governor of a prefecture was appointed by the national government, but he is now elected by direct vote of the inhabitants of the prefecture. The deputy governor and chief accountant are appointed by the governor with the consent of the prefectural assembly. The territory of each prefecture is further subdivided into municipalities,2 which thus form the third level of government. The number of municipalities in a prefecture differs from prefecture to prefecture, but on average there are about 70. The mayors of municipalities have been elected by direct vote of citizens since before World War II. In this monograph, the term 'local government' is used to describe both prefeotural and municipal governments. In Australia, local government as the third level of government needs to be distinguished clearly from the autonomous level of State governments. In Japan, however, as in unitary countries generally, prefectural governments and municipal governments are similar in that both are subordinate to the national government. The national government treats them similarly, often as a single group. Because problems concerning prefectural governments sometimes overlap and usually have a close connection with those of municipal governments, it is pointless to draw a distinction between them. They are treated together as part of local government, local being interpreted for this purpose as subnational. At 1 April 1979, there were 47 prefectures and 3,255 municipalities in Japan.3 The number of prefectures has been stable for a long time. It decreased by one in 1945, when the Okinawa Islands came under the control of the Allied Forces, but returned to the original number in 1973 when the Islands were returned to Japanese rule. The number of municipalities has decreased steadily from 10,520 in 1945 to 4,768 in 1956 and 3,372 in 1966. 1 In Japan four different titles have historically been given to prefectures: 'To', 'Do', 'Fu' and 'Ken'. So far as the structure and functions of government are concerned, there are no differences among 'Do', 'Fu' and 'Ken'. The Tokyo prefecture (in Japanese 'Tokyo To') is the only government which does not fit easily into the definition of a prefecture, because it combines the functions of prefecture and municipality. 2 There are three different titles for municipalities: 'Shi', 'Cho' and 'Son'. 'Shi' means city, 'Cho' means town and 'Son' means village. Usually, the population of a city exceeds 50,000 while that of a town exceeds 7,000. The functions performed by a city are somewhat wider in scope than those of towns and villages, although the difference is very small. Ten large cities designated by the national government (such as Osaka, Yokohama and Nagoya) carry out some important functions which are usually the responsibility of prefectural governments. The functions of towns are the same as those of villages. 3 Ministry of Home Affairs, Chiho Zaisei Hakusho(White Paper on Local Public Finance), 1980 edn, p. 164. 1

The f a l l betw een 1945 and 1956 was b ro u g h t about by a 'Law to Promote th e M erger of Towns and V i l l a g e s ', which was e n ac te d in 1953. The law p ro v id ed s p e c ia l p r iv ile g e s to th o se m u n ic ip a litie s which merged under the g uidance of th e c e n t r a l and p r e f e c tu r a l governm ents. These s p e c ia l p r i v il e g e s in c lu d e d generous p r o v is io n fo r g r a n ts, a u th o r is a tio n of lo c a l lo an s and an in c re a s e in th e number of c o u n c illo r s which was p e rm itte d under lo c a l government law s. The b a sic p h ilo so p h y of t h i s law was th a t m u n ic ip a litie s were g e n e ra lly too sm all fo r th e e f f i c i e n t su p p ly o f newly d ev elo p in g s e r v ic e s. Although the law e x p ire d in 1965, a s im ila r law e n t i t l e d 'Law C oncerning S p e c ia l M easures fo r M u n icip al M erger' i s c u r r e n tly in fo rc e. In tergovern m en tal D ivisio n o f Functions A lthough the r e la ti o n s h ip s betw een a n a tio n a l government and re g io n a l governm ents (such as s t a t e, p r o v i n c i a l, dominion or p r e f e c tu r a l governm ents) d i f f e r from one co u n try to a n o th e r, the r e la ti o n s h ip in f e d e r a l c o u n trie s i s u s u a lly d is tin g u is h e d from th o se in u n ita r y c o u n t r i e s. 4 In a f e d e r a tio n, th e n a tio n a l government and s t a t e governm ents a re ind ep en d en t of each o th e r. The n a ti o n a l government has c o n s t it u t io n a l r e s p o n s i b i l i t y fo r such fu n c tio n s as fo re ig n a f f a i r s, d e fen ce, and the cu rre n c y ; r e g io n a l governm ents have no powers to make laws in th ese sp h e re s. But r e g io n a l governm ents in t h e i r tu rn a re q u ite in d ependent of th e n a tio n a l government in c e r t a i n f i e l d s, which t y p ic a ll y in c lu d e fu n c tio n s such as e d u c a tio n, h e a lth s e r v ic e s and t r a n s p o r ta ti o n. Thus i t may be s a id t h a t, in a f e d e r a tio n, the p u b lic s e c to r i s d iv id e d i n to two in d ependent p a r ts, each of which has c o n s t i t u t i o n a l l y d e fin e d r i g h ts and r e s p o n s i b i l i t i e s in i t s own sp h e re. In a u n ita r y c o u n try, on th e o th e r hand, r e g io n a l governm ents are c r e a tu r e s of the n a tio n a l government and draw t h e i r powers from i t. T h eir a c t i v i t i e s a re w holly d eterm ined by the n a tu re o f th e l e g i s l a t i o n which i s e n ac te d by th e c e n tr a l governm ent. The powers and f u n c tio n s which re g io n a l governm ents p o ssess a re th o se which th e c e n t r a l government d e cid es to c o n fe r upon them. Thus th e e s s e n t i a l c h a r a c t e r i s t i c o f a u n ita r y c o u n try i s th a t the powers of r e g io n a l governm ents a re d e le g a te d and a re w holly d e riv e d from th e c e n t r a l governm ent. In a f e d e r a tio n, the powers of th e n a tio n a l government a re r e s t r i c t e d by th e C o n s titu tio n w h ile o th e r pow ers, u su a lly r e s id u a l powers, are a llo c a te d to r e g io n a l gove m m e n ts. In tergovern m en tal R e la tio n s in Japan A r tic le 92 o f th e Japanese C o n s titu tio n d e c la re s t h a t 'r e g u la tio n s concerned w ith the o rg a n iz a tio n and o p e ra tio n of lo c a l p u b lic b o d ies s h a l l be determ ined by laws in accordance w ith th e p r in c ip le of lo c a l autonom y'. S ince the term 'la w s ' r e f e r s to s t a t u t e s e n ac te d by the n a tio n a l assem bly, i t fo llo w s th a t th e a c t i v i t i e s of lo c a l governm ents dre b a s i c a ll y p re d eterm in ed by th e n a tio n a l government. S u b ject to t h i s c o n s t r a i n t, lo c a l p u b lic b o d ies ( lo c a l governm ents) have th e power to e n ac t r e g u la tio n s. A r tic le 94 o f th e Japanese C o n s titu tio n p ro v id es th a t 'l o c a l p u b lic b o d ies s h a l l have th e r i g h t... to e n ac t t h e i r own r e g u la tio n s w ith in the la w '. These re g u la tio n s a re u s u a lly c a lle d 'b y - la w s '. As may be in f e r r e d from A r t i c l e 94 of the C o n s titu tio n, by-law s a re v a lid only when they a re n o t in c o n f li c t w ith n a ti o n a l law s. 4 See, fo r exam ple, R.L. Mathews and W.R.C. Ja y, F ederal Finance, N elson, M elbourne, 1972, pp. 1-2; R.L. Mathews, Issu e s in A u stra lia n F ederalism, The Tenth R.C. J i l l s Memorial L e c tu re, U n iv e rsity o f Sydney, Sydney, 18 O ctober 197/; and K.C. Wheare, F ederal Government, 4 th edn, Oxford U n iv e rs ity T re s s, O xford, 1967. 2

Some a u th o rs have argued t h a t, in Jap a n, th e c e n t r a l government and lo c a l government a re e q u al p a r tn e r s ; t h a t th e re is no elem ent of c o n tr o l o r su b o rd in a tio n in t h e i r r e l a t i o n s. 5 But such a view c o n f l i c t s w ith r e a l i t y, because n e a rly a l l the a c t i v i t i e s of lo c a l government are c o n tr o lle d by n a tio n a l law s. L ocal government can a c t a c c o rd in g to i t s own w i l l only when th e re i s no c o n f li c t w ith n a ti o n a l law s. But the n etw ork of n a tio n a l laws sp read s in to ev ery f i e l d of governm ent, and only narrow a re a s a re l e f t to the i n i t i a t i v e of lo c a l governm ent. I n s u f f i c i e n t a cc ess to revenue may a ls o i n h i b i t lo c a l i n i t i a t i v e s. Thus Jap an may be s a id to be a h ig h ly c e n t r a l i s e d u n ita r y c o u n try. The n a tio n a l government e x e rc is e s very d e ta ile d and s t r i n g e n t c o n tr o ls over the whole range of lo c a l government a c t i v i t i e s. I t i s n o t too much to say th a t th e re a re no lo c a l government a c t i v i t i e s in which n a ti o n a l government e x p re sse s no i n t e r e s t a t a l l. The d om inating in flu e n c e of th e n a tio n a l government i s p a r tl y due to the la c k of any c le a r d iv is io n of governm ental fu n c tio n s among th e th r e e le v e ls o f governm ent. At p r e s e n t, governm ents a t a l l l e v e ls sh a re r e s p o n s i b i li t y in alm ost a l l f i e l d s of p u b lic a d m in is tr a tio n. For exam ple, in th e case o f elem en tary sch o o l e d u c a tio n, the n a tio n a l government d eterm in es the c u rric u lu m ; a u th o r is e s the te x tb o o k s to be used; p r e s c r ib e s v a rio u s sta n d a rd s such as th e number o f te a c h in g hours in a week, c la s s s iz e s and p h y s ic a l dim ensions of c la ss-ro o m s; and u n d e rta k es re s e a rc h d ir e c te d to the improvement of e d u c a tio n. P r e f e c t u r a l governm ents conduct ex am in atio n s to p ro v id e a l i s t of q u a lif ie d te a c h e rs from which m u n icip al e d u c a tio n a l b o ard s s e le c t new s t a f f f o r t h e i r sc h o o ls, and pay th e s a l a r i e s of te a c h e r s, who a re a p p o in te d by m u n icip al e d u c a tio n a l b o a rd s. The a c tu a l o p e ra tio n of elem en tary sc h o o ls is the r e s p o n s i b i li t y of m u n icip al governm ents. They c o n s tr u c t elem en tary sch o o l b u ild in g s and d eterm in e th e zones from which the sc h o o ls draw t h e i r p u p ils. They employ te a c h e rs and a n c i l la r y s t a f f and b e a r running expenses o th e r than te a c h e r s a l a r i e s. When th e Shoup M ission v i s i t e d Japan a f t e r World War I I i t was s u r p r is e d by the i n tr i c a c y o f th e d iv is io n of governm ental fu n c tio n s in Jap an. I t c o n sid ere d th e s i t u a t i o n in im ic a l to th e e sta b lish m e n t of re s p o n s ib le government and ad v ised Jap an ese a u t h o r i t i e s to a ssig n p a r t i c u l a r fu n c tio n s to each le v e l of government. The purpose o f t h i s recommendation was to e s t a b l i s h c le a r ly which le v e l of government was re s p o n s ib le fo r each fu n c tio n. But th e recom mendation was n o t ad o p ted, p a r tl y because of th e n a tio n a l governm ent's r e lu c ta n c e to weaken i t s c o n tr o l ov er lo c a l government and p a r tl y because of th e i n a b i l i t y o f lo c a l government to c a rry out v a rio u s fu n c tio n s e f f i c i e n t l y and in d e p e n d e n tly. Types o f Local Government A c tiv ity : D elegated and E n tru ste d In Jap an, a d i s t i n c t i o n i s made betw een a c t i v i t i e s which are 'd e le g a te d ' to lo c a l governm ent and a c t i v i t i e s which a re 'e n tr u s te d ' to them.6 D elegated a c t i v i t i e s a re a l l o t t e d to lo c a l government by n a tio n a l law. They are a c t i v i t i e s which are c o n sid e re d a p p ro p ria te fo r' lo c a l a u t h o r i t i e s to u n d ertak e and in c lu d e the s e r v ic e s which have been t r a d i t i o n a l l y perform ed by lo c a l governm ent. S chools, ro a d s, flo o d c o n tr o l and w ater supply a re examples o f d e le g a te d a c t i v i t i e s. 5 T. O g ita, Chiho Z e iza ise i Seido (System o f L ocal Tax and P u b lic F in a n c e ), Gakuyo P u b lish in g C o., Tokyo, 1975. 6 The term 'd e le g a te d a c t i v i t i e s ' i s d e riv e d from th e Jap an ese 'Kokyo Z im u '. The d e le g a tio n to lo c a l government i s e f f e c te d by A r tic le 2 of the L ocal Autonomy Law (Chiho J i c h i h o ). 3

E n tru s te d a c t i v i t i e s a re e s s e n t i a l l y the r e s p o n s i b i li t y of n a tio n a l government but a re e n tr u s te d to lo c a l government fo r re aso n s of a d m in is tr a tiv e convenience. They are th u s a c t i v i t i e s which lo c a l government perform s in an agency ro le. E n tru s te d a c t i v i t i e s a re f u r t h e r d iv id e d in to two c a te g o r ie s, those e n tr u s te d to lo c a l p u b lic b o d ies and th o se e n tr u s te d to the heads of th e e x e c u tiv e organs of p u b lic b o d ie s, such as g o v ern o rs, m ayors, heads of e d u c a tio n a l boards and so o n.7 L ocal a sse m b lie s have th e same powers in r e l a t i o n to a c t i v i t i e s e n tr u s te d to lo c a l p u b lic b o d ies as th ey have in r e l a t i o n to d e le g a te d a c t i v i t i e s. Local asse m b lie s can make r e g u la tio n s o r tak e o th e r a c tio n w ith in the lim it of n a tio n a l law s. But lo c a l a sse m b lie s have no powers a t a l l in r e la ti o n to a c t i v i t i e s e n tr u s te d to th e heads of lo c a l e x e c u tiv e o rg an s. When a lo c a l government c a r r i e s out a c t i v i t i e s e n tr u s te d to th e e x e c u tiv e head, the e x ec u tiv e organ of lo c a l government a c ts in the c a p a c ity of an a g en t of the n a tio n a l governm ent. I t is e n t i r e l y under th e c o n tr o l of th e n a tio n a l government and must perform the a c t i v i t i e s e n tr u s te d to i t in accordance w ith the d ir e c tio n of th e m in is te r in ch arg e. In t h is c a s e, the governor o f a p r e fe c tu r e i s re s p o n s ib le to the m in is te r in ch arg e, w h ile a mayor a c ts under the s u p e rv is io n of th e governor who i s the deputy of th e m in is te r in ch arg e. Mandamus When a governor a c tin g as an a g en t of th e n a tio n a l government v i o la t e s the law or a m i n i s t e r i a l o rd e r, o r i f he i s in d e f a u l t, the m in is te r in charge may use mandamus p ro c ee d in g s to c o r re c t th e s i t u a t i o n. Mandamus p ro c ee d in g s a r is e and a re d e a lt w ith as f o llo w s :8 (a) (b) (c) (d) (e) When th e n a tio n a l government becomes aware o f a g o v e rn o r's d e f a u lt o r i l l e g a l a c t in r e l a t i o n to a n a tio n a l fu n c tio n, the m in is te r in charge w i l l i n s t r u c t th e governor to tak e c o r r e c tiv e m easures w ith in a s p e c if ie d p e rio d. I f the governor f a i l s to take c o r r e c tiv e m easures, th e m in is te r in charge w i l l f i l e a s u i t in a h ig h c o u rt f o r a w r it of mandamus. I f the c o u rt is s u e s a w rit of mandamus and i f the governor f a i l s to comply w ith the w r i t, th e m in is te r in charge w i l l f i l e s u i t in th e same hig h c o u rt fo r c o n firm a tio n of n o n -com pliance. I f the c o u rt hands down a d e c is io n fa v o u ra b le to the m in is te r in ch arg e, th a t m in is te r may h im se lf make the n e c e ssa ry d e c is io n s on b e h a lf of th e d e f a u ltin g governor. The prime m in is te r has power to d ism iss a d e f a u ltin g g o vernor. Mandamus p ro c eed in g s may a ls o be a p p lie d to m ayors. In such a c ase, a governor a c ts as deputy fo r th e m in is te r in ch arg e. I t i s very u n u su al fo r mandamus p ro c ee d in g s to p roceed beyond th e f i r s t s te p. 7 The term 'a c t i v i t i e s e n tr u s te d to lo c a l p u b lic b o d ie s ' is an E n g lish tr a n s la t io n of 'D a n ta i In in Z im u ', w h ile the term ' a c t i v i t i e s e n tr u s te d to the heads of th e e x e c u tiv e organs of p u b lic b o d ie s ' i s an E n g lish t r a n s la t io n o f 'K ikan In in Z im u'. 8 L ocal Autonomy C ollege and M in istry of Home A f f a ir s, L ocal Government in Japan, (U npublished B o o k let), Tokyo, 1974. 4

II REVENUES OF LOCAL GOVERNMENT SOURCES OF REVENUE The revenues of local government for 1975 are set out in Table II-l, the data for prefectures and municipalities being shown in adjoining columns. It can be seen from the table that the revenues of prefectural governments are similar in composition and amount to those of municipalities. Table II-l k REVENUES OF PREFECTURES AND MUNICIPALITIES, 1975 Prefectures Municipalities Total million % million % million % Local taxes 4,280,955 29.6 3,873,886 30.1 8,154,841 31.3 Local transfer taxes 149,050 1.0 99,107 0.8 248,157 1.0 Local allocation tax 2,392,218 16.5 2,078,834 16.1 4,471,052 17.2 Prefectural tax transferred to municipalities - 159,354 159,354 1.2 - Sub-total (General revenue) 6,822,223 47.1 6,218,181 48.2 12,874,049 49.4 Contribution towards improvement 192,554 1.3 167,737 1.3 251,598 1.0 Fees and charges 194,331 1.3 234,908 1.8 429,238 1.6 National specific purpose grants 3,909,648 27.0 1,923,024 14.9 5,832,673 22.4 Special traffic safety grants 29,623 0.2 19,972 0.2 49,595 0.2 Prefectural specific purpose grants - 719,900 719,900 5.6 - Revenue from property 148,^78 1.0 243,122 1.9 392,001 1.5 Donations 16,980 0.1 87,162 0.7 100,661 0.4 Local loans 1,617,748 11.2 1,642,115 12.7 3,179,896 12.2 Miscellaneous 1,544,168 10.7 1,641,270 12.7 2,934,707 11.3 Total 14,476,153 100.0 12,890,391 100.0 26,044,417 100.0 Fiscal year commencing 1 April 1975. Source: Ministry of Home Affairs, Chiho Zaisei Hakusho (White Paper on Local Public Finance), 1977 edn, p. 218. 5

Local Taxes L ocal ta x a tio n i s the l a r g e s t of a l l revenue ite m s, though i t p ro v id es only about 30 p e r c e n t of t o t a l rev en u es. There i s a body o f o p in io n th a t the ta x revenue of lo c a l governm ents should be in c re a s e d. However, the d i f f e r i n g ta x a b le c a p a c itie s o f lo c a l governm ents makes t h i s d i f f i c u l t. Some governm ents can in c re a s e t h e i r ta x revenue g r e a tly by in tro d u c in g new tax es o r r a is in g e x is ti n g ta x r a te s ; o th e r s, however, can on ly m o d erately in c re a s e t h e i r tax revenue by u sin g such m easures. T his e x p la in s why lo c a l tax revenue p lay s on ly a r e l a t i v e l y sm all ro le in Japanese lo c a l p u b lic fin a n c e. The lo c a l tax system in Japan w i l l be review ed in more d e t a i l in C hapter IV. Local T ra n sfer Taxes1 L ocal t r a n s f e r ta x e s a re le v ie d by th e n a tio n a l government on b e h a lf of p r e f e c tu r a l and m u n icip al governm ents. They are le v ie d on the same tax b ases as n a tio n a l ta x e s, so th a t d u p lic a tio n in assessm en t and c o lle c tio n i s av oided. At p re s e n t th e re a re fiv e lo c a l t r a n s f e r tax e s: the lo c a l road t r a n s f e r ta x, the s p e c ia l tonnage t r a n s f e r ta x, the l iq u e f ie d p etro leu m gas t r a n s f e r ta x, the motor v e h ic le tonnage t r a n s f e r ta x and th e a v ia tio n fu e l t r a n s f e r ta x. The lo c a l road t r a n s f e r tax is le v ie d on g a so lin e and c o lle c te d by the n a tio n a l government to g e th e r w ith i t s g a so lin e ta x. I t i s earm arked fo r lo c a l government e x p e n d itu re s on roads and i s a llo c a te d on th e b a s is of th e a rea and le n g th of road in each l o c a l i t y. S p e c ia l tonnage tax i s le v ie d on the n e t tonnage of sh ip s engaged in fo re ig n tra d e when they e n te r a u th o ris e d fo re ig n tra d e p o r ts, and is c o lle c te d w ith the n a tio n a l gov ern m en t's tonnage ta x. The revenue c o lle c te d a t each p o rt i s w holly tr a n s f e r r e d to th e lo c a l m u n ic ip a lity and i s not earm arked fo r a s p e c if ic p u rp o se. The n a tio n a l government le v ie s a f u e l tax on liq u e f ie d p etro leu m gas used in m otor v e h ic le s. H alf the revenue from t h i s tax is nom inated a s the liq u e f ie d petro leu m gas tr a n s f e r tax and is a llo c a te d to p r e fe c tu r e s and ten la rg e c i t i e s fo r e x p e n d itu re s on ro ad s. A q u a r te r of th e motor v e h ic le tonnage ta x, which i s le v ie d a n n u a lly or b ie n n ia lly on the owners of m otor v e h ic le s a cco rd in g to the w eight of v e h ic le s, is tr a n s f e r r e d to m u n ic ip a litie s a s the m otor v e h ic le tonnage t r a n s f e r ta x, a g ain fo r e x p e n d itu re s on ro ad s. T w o -th irte e n th s of the revenue from a v ia tio n f u e l ta x is tr a n s f e r r e d as a v ia tio n fu e l t r a n s f e r ta x to m u n ic ip a litie s where a ir p o r t s are lo c a te d and to a d jo in in g m u n ic ip a litie s. I t i s s p e c i f i c a l l y a ll o c a t e d fo r e x p e n d itu re s r e la te d to a i r p o r t s in c lu d in g the c o s ts of A ir c r a f t n o ise abatem ent and th e p ro v is io n of p u b lic f a c i l i t i e s in and around te rm in a ls. From 1979 a p a r t of t h is tax has been tr a n s f e r r e d to p r e f e c tu r a l governm ents. 1 In t r a n s l a t i n g te c h n ic a l term s from Jap an ese in to E n g lish, i t i s sometimes d i f f i c u l t to convey an e x ac t m eaning. For the Jap an ese 'C hiho joyo z e i ' th e words 'l o c a l t r a n s f e r ta x ' - as used in the O utline o f Japanese Tax System by the N a tio n a l Tax Agency - have been s e le c te d as conveying th e n e a r e s t t r a n s l a t i o n. However, P ro fe ss o r H. Ito h used the words 'l o c a l a llo c a tio n ta x ' in h i s a r t i c l e, 'E q u a liz a tio n of L ocal Finance in J a p a n ', Finanzarchiv, Neue F olge, Band 26, H eft 1, 1967. 6

Local A llo ca tio n Tax Local a ll o c a t io n ta x is a l i t e r a l t r a n s l a t i o n of th e Jap an ese 'C hiho k o f u z e i ', 2 m eaning the ta x revenue a llo c a te d to lo c a l governm ent. I t i s an u n c o n d itio n a l, n o n - s p e c if ic e q u a l i s a t i o n g ra n t from th e n a ti o n a l government to lo c a l governm ents - in o th e r w ords, a tax sh a rin g g ra n t. I t w i l l be d e sc rib e d in more d e t a i l in C h ap ter V. P refectu ra l Tax Revenue T ransferred to M u n ic ip a litie s There are th re e p r e f e c tu r a l ta x e s, th e revenues of which a re p a r tl y o r w holly tr a n s f e r r e d to m u n ic ip al governm ents. The l i g h t o i l d e liv e ry tax is le v ie d by p r e f e c tu r a l governm ents on l ig h t o i l used in d i e s e l engine v e h ic le s. Revenue from t h i s ta x i s a ll o c a t e d f o r main ro ad s e x p e n d itu re s. As ten la r g e c i t i e s a re ta k in g o v er th e management of main roads from p r e f e c t u r a l governm ents, a p a r t of th e revenue from t h i s tax is tr a n s f e r r e d to th o se c i t i e s. A nother p r e f e c tu r a l government ta x, th e au to m o b ile a c q u is itio n ta x, i s le v ie d on p u rc h a se rs of a u to m o b ile s. Seventy p er c e n t of th e revenue from th e ta x, a f t e r d ed u ctio n of c o ll e c t io n c o s t s, is t r a n s f e r r e d to m u n icip al governm ents f o r ex p en d i tu r e s on ro ad s under t h e i r management. The tax i s c o lle c te d by p r e f e c tu r a l governm ents a s a m a tte r of a d m in is tr a tiv e con v en ien ce. G o lfe rs a re s u b je c t to an e n te rta in m e n t tax imposed by p r e f e c tu r a l governm ents. M u n ic ip a litie s where g o lf c o u rse s a re lo c a te d re c e iv e h a lf th e revenue from t h i s tax by way of com pensation f o r lo s s of revenue from r e a l p ro p e rty tax on b u ild in g s which m ight o th erw ise have been c o n s tru c te d. B e n e fic ia r ie s ' C ontribution Towards Improvement3 A r t i c l e 224 of th e L ocal Autonomy Law p ro v id e s : 'When a s e r v ic e by lo c a l government p ro v id e s b e n e f it only to a few p eo p le o r only to p eo p le in a c e r t a i n d i s t r i c t, lo c a l government may lev y a b e n e f i c i a r i e s ' c o n tr ib u tio n on th o se p eo p le who re c e iv e s p e c ia l b e n e f it from th e s e r v ic e. The c o n tr ib u tio n should be a p p ro p r i a t e d to th e c o s t of th e s e r v ic e and th e amount of th e charge fo r a p erso n sh o u ld n o t exceed th e v a lu e of b e n e f it which he r e c e i v e s '. B e n e f ic ia r ie s c o n tr ib u tio n s can th e r e f o r e be imposed by l o c a l governm ents under by-law and th e revenue th ere fro m a p p ro p ria te d to th e c o st of p u b lic s e r v ic e s such as th e c o n s tr u c tio n o f sewerage sy stem s, s t r e e t s and i r r i g a t i o n sy stem s. Such le v ie s a re made u s u a lly on landow ners but som etim es on th e owners of b u ild in g s. However, a t th e p re s e n t tim e le v ie s of t h i s k in d ap p ear to be d e c re a s in g. 2 The M in is try o f Home A f f a ir s used th e term 'l o c a l a ll o c a t io n t a x '. P r o f e s s o r H. I to h t r a n s la t e d 'C hiho k o fu z e i' as l o c a l t r a n s f e r tax : H. I to h, op. c i t. In the O utline o f Japanese Tax System } op. c i t., the term 'l o c a l g ra n t ta x ' is used f o r 'C hiho k o f u z e i '. 3 'B e n e f i c i a r i e s ' c o n tr ib u tio n s to im provem ent' i s used here as an E n g lish t r a n s l a t i o n o f 'B u n tan k in oyobi f u t a n k i n '. The amount of the p r e f e c tu r a l b e n e f i c i a r i e s ' c o n tr ib u tio n which i s reco rd e d in T able I I - l in c lu d e s c o n tr ib u tio n s by m u n ic i p a l i ti e s tow ards the c o s t o f p u b lic f a c i l i t i e s which are p ro v id ed by p r e f e c t u r a l government and b e n e f it peo p le in the m u n ic ip a litie s. 7

Fees and Charges Prefectural governments collect fees for high school education, rent from prefectural welfare housing and so on.1* They also impose charges for driving permits, restaurant licences, and the inspection of weights and measures.45 The revenue obtained by municipal government from fees comes from such sources as nursery school fees, rent from municipal welfare housing and sewerage charges. Most municipal revenue from charges is derived from the issue of exemplified certificates such as family registration certificates, residential registration certificates, attested copies of registered documents, and the like. Some municipalities, usually small cities and towns, charge for garbage collection. Specific Purpose Grants by the National Government6 Specific purpose grants account for about half the total transfers from the national government to local governments. They are usually conditional with the national government exercising stringent control over their use. Further details will be given in Chapter VI. Special Traffic Safety Grant7 Moneys from fines imposed for violation of traffic regulations are collected by the national government and transferred to local governments as a 'special traffic safety grant'. The grant is made specifically for expenditures on traffic safety facilities, such as traffic signals, road signs, pedestrian crossing bridges, footpaths and cycle paths. The special traffic safety grant falls within the category of specific purpose grants but is usually separated from other specific purpose grants on the ground that the moneys are derived from fines rather than tax revenue. Prefectural Specific Purpose Grants8 Prefectural specific purpose grants are transferred from prefectural governments to municipal governments. They are similar in nature to specific purpose grants made by the national government and, like those grants, are usually conditional. About one-half of prefectural specific purpose grants is directed to the construction of public facilities. Sometimes prefectural specific purpose grants are themselves financed by national specific purpose grants. 4 The word 'fee' is used here as an English translation of 'Shiyoryo'. Shiyoryo literally means a user fee for public facilities. 5 The word 'charge' is used here as an English translation of 'Tesuryo'. Tesuryo literally means a share of the cost of services provided by government at the request of citizens. 6 'National specific purpose grant' is an English translation of 'Kokko shisyutsukin' and seems to represent the character of kokko shisyutsukin most adequately. Professor H. Itoh's translation is 'specific grant': H. Itoh, op. cit. The Local Autonomy College's translation is 'national disbursement' (in Local Public Finance in Japan, unpublished pamphlet, 1973); while the National Tax Bureau translates it as 'national subsidy' in the Outline of Japanese Tax Systemj op. cit. 7 'Special traffic safety grant' is an English translation of 'Kotsu anzentaisaku tokubetsu kofukin'. 8 'Prefectural specific purpose grant' is an English translation of 'Ken shisyutsukin'. 8

Revenue from Property9 Two ty p es of revenue a re in clu d e d under t h i s h ead in g. The f i r s t c o n s is ts of proceeds from th e s a le of government p ro p e rty. In e a r l i e r tim e s, some m u n ic ip a litie s o b ta in e d a s u b s t a n t i a l p ro p o rtio n o f t h e i r revenues from th e s a le o f tim b e r from m u n icip al f o r e s t s. But owing to the in c r e a s e in the s iz e of lo c a l b u d g e ts, such proceeds now make up only a sm all p ro p o rtio n o f t o t a l r e c e ip t s. The second form of revenue from p ro p e rty c o n s is ts o f fe es charged f o r th e use of p u b lic f a c i l i t i e s fo r purposes o th e r th an t h e i r prim ary u se, e.g. r e n t c o lle c te d from a r e s t a u r a n t s i t u a t e d in an a d m in is tr a tiv e b u ild in g. Donations A r tic le 4-V of th e L ocal Finance Law p r o h i b it s the e x a c tio n of d o n a tio n s. However, v o lu n ta ry g i f t s by c it i z e n s a re welcomed. Local Loans L ocal governm ents a ls o o b ta in funds by r a is in g p u b lic lo a n s. The r a is in g of such lo an s i s c o n tr o lle d by the n a ti o n a l governm ent. P r e f e c tu r a l governm ents cannot issu e bonds w ith o u t th e p erm issio n o f th e n a tio n a l governm ent. S im ila r ly, m u n icip al governments cannot is s u e bonds w ith o u t th e p e rm issio n o f th e p r e f e c tu r a l governm ent. The a g g re g a te amount which may be borrowed i s s u b je c t to the f i s c a l p o lic y o f the n a tio n a l governm ent. When th e economy i s d e p re sse d, the c e n tr a l government w ill a u th o ris e in c re a s e d borrow ings by lo c a l governm ents so as to encourage in c re a s e d p u b lic e x p e n d itu re. F u rth e r d e t a i l s a re given in C hapter V II. Miscellaneous B esid es th e so u rc es of income m entioned above, v a rio u s item s appear on the revenue s id e o f lo c a l government b u d g e ts. These in c lu d e revenue from p ro fit-m a k in g a c t i v i t i e s, i n t e r e s t on d e p o s its, b a la n c e s b ro u g h t forw ard from th e l a s t f i s c a l y e ar and t r a n s f e r s from b u sin e ss u n d e rta k in g s. The p ro fit-m a k in g a c t i v i t i e s in c lu d e s p o r tin g a c t i v i t i e s of v a rio u s k in d s (such as h o rse racin g, b ic y c le ra c in g, motor b ic y c le ra c in g and m otor b o at ra c in g ) and l o t t e r i e s. CLASSIFICATION OF REVENUES General Revenues and S p ecific Purpose Revenues The revenues o f lo c a l governm ents may be d iv id e d in to s p e c if i c purpose revenues and g e n e ra l purpose re v e n u e s.10 S p e c ific purpose revenues can be a p p ro p ria te d only fo r a p red eterm in ed s p e c if i c p u rp o se. N a tio n a l s p e c if i c purpose g r a n ts, p r e f e c tu r a l s p e c if i c purpose g ra n ts and lo c a l lo an s a re ty p ic a ll y c l a s s i f i e d as b ein g f o r s p e c if ic p u rp o s e s. 9 'Revenue from p ro p e rty ' i s an E n g lish t r a n s l a t i o n of 'Z a isa n s y u n y u '. 10 'S p e c if ic purpose rev en u e' i s an E n g lish t r a n s la t io n o f 'T o k u te i z a i g e n ', and 'g e n e r a l rev en u e ' i s an E n g lish t r a n s l a t i o n o f 'ip p a n z a ig e n '. 9

General purpose revenues, as their name implies, can be appropriated for any purpose. Local taxes and the local allocation tax (tax sharing grants) fall into this category. However, some earmarked revenues, such as local road transfer tax and liquefied petroleum gas transfer tax, are usually classified as general revenues because they may be used to finance any expenditures connected with roads. Taxes specified, say, for the improvement of a certain part of a particular highway would be classified as specific purpose revenues. Local governments prefer general revenues because specific purpose revenues restrict their freedom to allocate funds to what they see as areas of need. Those who attach great importance to local autonomy tend to call for an increase in general revenues relative to specific purpose revenues. Many of the local government revenues mentioned above can be classified as independent revenues or dependent revenues.11 Independent revenues are those levied and collected by local government, while dependent revenues are transferred, donated or borrowed from other sources. Local taxes, beneficiaries' contribution towards improvement, revenue from property, fees and charges are the main items of independent revenues. Local governments determine the amount of these levies and collect the proceeds themselves. On the other hand, local transfer taxes, the local allocation tax and national specific purpose grants are typically classified as dependent revenues. They are all transferred from the national government and their amount is determined by the national government. Local loans are now classified as dependent receipts because the amounts which can be issued are controlled by the national government. From local government's point of view, independent revenues are more advantageous than dependent revenues, because they enhance the autonomy of local government. Dependent revenues tend to diminish local control over the budget; a budget based entirely on dependent and specific purpose revenues would bring local government wholly under the control of the national government. Of course such a situation is unlikely to arise, but local government is conscious of the dangers. Another disadvantage of dependent revenues is that the community becomes less conscious of the cost of local government services, because the individual is not called upon to make any direct financing contribution. This could be an obstacle to the efficient allocation of resources. 'Independent revenue' is an English translation of 'Jisyu zaigen' and 'dependent revenue' is an English translation of 'Izon zaigen'. 10