Open Journal of Social Sciences, 2015, 3, 88-92 Published Online August 2015 in SciRes. http://www.scirp.org/journal/jss http://dx.doi.org/10.4236/jss.2015.38009 Fiscal Sustainability of Japanese Prefectural Government Debt Rena Akamatsu, Kazuki Hiraga* School of Political Science and Economics, Tokai University, Kanagawa, Japan Email: *
[email protected] Received 23 July 2015; accepted 15 August 2015; published 18 August 2015 Copyright © 2015 by authors and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY). http://creativecommons.org/licenses/by/4.0/ Abstract This paper investigates whether the Japanese local government debt is sustainable. We apply the fiscal stabilization rule that each local government improves their primary balance in the current year when they issue additional debt the previous year. We check it using panel data of the Japa- nese prefectural governments. We find that Japanese prefectural governments were not sustaina- ble across 1956-2007, though were sustainable across 1956-1989. Keywords Prefectural Government, Fiscal Sustainability, Fiscal Stabilization Rule 1. Introduction In Japan, as in other countries, the recession caused by the subprime loan crisis has reduced tax revenues and necessitated additional government expenditures. Meanwhile, debt crises in Greece, Ireland, and Portugal have focused on financial reform in the EU. Japan’s ratio of central and local government debt to GDP is relatively high compared to other OECD countries (Figure 1), and national financial reform has become a major debate in Japan. Furthermore, fiscal problems among municipalities and prefectures have been a topic of sustained discus- sion in Japan.