Resource title

Local government finance in Japan : Can irresponsible borrowing be avoided?

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image for OpenScout resource :: Local government finance in Japan : Can irresponsible borrowing be avoided?

Resource description

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 bor- rowing by a `consultation system´ in FY 2006 does not remove the implicit central govern- ment 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.

Resource author

Naoyuki Yoshino, Frank Robaschik

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/23137

Resource license

Adapt according to the presented license agreement and reference the original author.