The Process of Decision-making on Loans from the Local Government

Abstract

This paper provides an empirical analysis on the decision-making process on loans from the prefectural government, as follows.

First, an amount of the loans increases in the years of local elections, owing to requests from both a governor and the biggest party in the assembly, aiming at absorbing votes who need financing, respectively, when there is a considerable political split between the two. The harder the political struggles are, the stronger this tendency becomes.

Second, on the other hand, bureaucrats at the Ministry of Finance, MOF, incline to reduce rather than expand public loans, facing the huge deficit in the public sector. That is, they are not categorized in the Niskanen's type.

My conclusion suggests that the political and bureaucratic intervention in the process of decisionmaking on the public loans can not sufficiently provide financial supports to Small and Medium-sized Enterprises. In other words, the public loans should more rely on the market-mechanism.