Trench Warfare on the Tax Fields: Bureaucratic Politics and Fiscal Decentralization in Japan

Abstract

Decentralization is a motherhood issue in Japan, with anyone opposed to it risking the public image of an antediluvian and anti-democratic centralist. But little if any decentralization has occurred, particularly on the tax front. We argue that one major reason for this state of affairs is an entrenched network of institutions that blocks the expansion of the locally determined tax base and politicians who lack sufficient incentives to reform the system. Our analysis thus explores the fiscal interests of the Ministry of Home Affairs and the Ministry of Finance, and how these interests have manifested themselves in recent episodes of tax reform. The cases we discuss are the inter-ministerial fights over the Land-Value Tax and Local Consumption Tax.