The issue of local autonomy, although written into the Japanese constitution $UWLFOHV ² RI &KDSWHU UHPDLQV D FRQWURYHUVLDO PDWWHU HVSHFLDOO\ LQ WKH DUHQD RI ÀQDQFLQJ 3XEOLF VHUYLFHV LQ -DSDQ DUH SULPDULO\ WKH SXUYLHZ RI municipalities and prefectures, which account for some two-thirds of public spending on such services but only receive one-third of all public revenues. This difference results in an important shift of revenue-generating from the national level to local communities that bears very little resemblance to the systems in place in other countries. The issue raised is that of local revenues versus taxation from national subsidies in regard to the borrowing capacity of local communities. 0RUHRYHU WKH ÀQDQFLDO LVVXH DOVRPHDQV WKDW WKH VWDWH QHFHVVDULO\ LQWUXGHV LQ the local sphere. Prefectures and municipalities are responsible for a wide range of services, mainly public works, including town planning, transportation, and industrial and educational infrastructure. The decentralization law enacted in 2000 was aimed at reforming the old system of responsibilities delegated to local communities under the control of ministries, with the goal of moving toward a redistribution of powers based on mutual cooperation rather than subordination VHH DOVR &KDSWHUV DQG &KDQJHV DOVR RFFXUUHG LQ ORFDO ÀQDQFLQJ EXW GR QRWDSSHDU WRKDYHNHSWSDFHZLWK WKHFXUUHQWÀQDQFLDOGLIÀFXOWLHVRI -DSDQHVH communities. $WWKHHQGRIWKHVQHZVSDSHUDQGWHOHYLVLRQUHSRUWVSRUWUD\HGWKHÀQDQ-
cial situation of the Japanese local public sector as a state of crisis. Since the FROODSVHRIWKH´EXEEOHµHFRQRP\WKDWRFFXUUHGDWWKHEHJLQQLQJRIWKHGHFDGH the Japanese economy has taken more than 10 years to recover. $FFRUGLQJ WR WKH PHGLD WKH FRXQWU\·V ÀQDQFLDO FULVLV -DSDQ·V SXEOLF GHEW
UHSUHVHQWHG DSSUR[LPDWHO\ SHUFHQW RI WKH*'3 LQ FDQ EH WUDFHG WR SXEOLFZRUNVSURMHFWV UHDOL]HGGXULQJ WKHEXEEOHHUDDQGDQHJOHFWRIÀQDQFLDO restructuring, as well as a lack of awareness. The public sector previously expeULHQFHGWZRSHULRGVRIÀQDQFLDOWUDXPDRQHDIWHU:RUOG:DU,,DQGWKHRWKHULQ WKHVDVDUHVXOWRIWKHRLOVKRFNEXWWKHVHZHUHQRWDVVHYHUHDVWKHVLWXDWLRQ today. After examining a number of indicators that demonstrate the extent of the ORFDOSXEOLFVHFWRU·VFXUUHQWÀQDQFLDOFULVLVWKLVHVVD\ZLOORXWOLQHLWVXQGHUO\LQJ causes and analyze the solutions proposed by the national and local governments as well as by experts.