ABSTRACT
Japanese intergovernmental relations (IGR) have changed drastically. In June 2002, the council proposed studying reform of IGR, including revision of tax distribution, reform of national treasury subsidies, and local allocation tax within a year. Ministries and many Liberal Democratic Party (LDP) politicians resisted this reform because it would take away the IGR tool to control local governments from ministries and LDP politicians’ influence on the process of decision making on subsidies. Decentralization reform, especially transferring national functions to local government, gathered momentum in order to resolve the problem. The long recession beginning in 1992 caused many local governments to suffer from decreasing revenue; many issued local bonds for public investment and to help turn the economy around. The Council on Economic and Fiscal Policy in Cabinet Office pointed out that local branches caused wasteful spending and categorized them into three categories: to be abolished, to be transferred to a ministry, or to be transferred to local government in May 2007.
