Fiscal adjustment in Japanese municipalities

We examined the dynamic adjustment of municipal budgets in Japan using the VECM. * The results are compared to the cases for the United States, Germany, and Spain. * Japanese municipalities respond to fiscal shocks mainly by their capital expenditure. * The municipalities' tax plays a limited role in balancing the local budget. This study examines how Japanese municipalities restore their fiscal balance after a budget shock. The results show that these fiscal adjustments occur mainly via changes in government investment, accounting for 63-95% of adjustments in permanent unit innovations in gra... Mehr ...