Local government finance in Japan: Can irresponsible borrowing be avoided? - Duisburger Arbeitspapiere zur Ostasienwirtschaft ; 72(2004)

by Yoshino, Naoyuki; Robaschik, Frank

Abstract (Summary)
Rapidly rising local government debt in Japan presents a nontrivial addition to the central government debt. The planned replacement of the approval system for local government borrowing by a consultation system in FY 2006 does not remove the implicit central government guarantee for local debt and thus the moral hazard involved in the system. Given all the risks associated with high debt levels (crowding out, inflation, potential insustainability) and the bad selection of projects financed under the current system, we suggest to restrict local government borrowing to user based revenue bonds, where investors receive the future revenue of the project and have an incentive to carefully select and monitor the projects they finance. In a generation model we show that this not only improves the sustainability of local government debt, but that it is highly likely that the debt will be sustainable.
Bibliographical Information:


School:Universität Duisburg-Essen, Standort Essen

School Location:Germany

Source Type:Master's Thesis

Keywords:wirtschaftwissenschaft universitaet duisburg essen


Date of Publication:11/26/2004

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