Allocation of tax sources between the national government and local authorities.
The ratio of national/local tax revenues is 2：1. However, in order to harmonize the fiscal gap between local authorities, a certain portion of national tax revenue is distributed to local authorities as a 'Local allocation tax', which has no specified application. Grants are also distributed, so on the final disbursement base the ratio of national expenditure to local is exactly reversed, at 1：2. In short, some portion of the fiscal expenditure of local government is distributed from the state to the regions.
Table 10 Distribution of National and Local Revenue Resources (Fiscal 1996)
The present state of local finance
The local finance system includes the budgets of about 3,300 local authorities, of which most maintain an unstable fiscal base. The deficits of local authorities have been rapidly growing since fiscal 1994 because of tax cuts and a reduction in tax revenue. In fiscal 1997, the regional deficit amounted to 5.9 trillion yen (6.7% of local finance plans). Although this shrank in fiscal 1998, the deficit still amounted to 5.4 trillion yen. As the result of tax cuts, reduction in local taxes and increased issues of local bonds at the request of the national government as part of stimulus policies, loans held by local authorities are quickly growing and at the end of fiscal 1998 amounted to 156 trillion yen, 30.1% of GDP, double the amount in fiscal 1991.
