Study on Factors Affecting the Initiation of PFI Business

Abstract

Many local authorities have been facing difficult problems such as lack of revenues and insufficient infrastructure; they are thus struggling to supply public goods or services sufficiently. However, if such cities choose the Private Finance Initiative (PFI) scheme, they could relieve financial deficiency by benefitting from the effect of payment in installments and a fiscal standardization provided by PFI projects.

In this paper, we focus on factors affecting the initiation of PFI projects by local authorities and analyze the factors affecting the initiation PFI projects by local governments using the Tobit and OLS models.

The results of this study show that, in Japan in general, the factors having a positive impact are population, staff salary, and taxable income; in metropolitan areas, factors are population, number of the public employees per capita, and staff salary; in regional area, the only factor is population.

In particular, PFI projects require the ability of the public sector to pay back the debt and appropriate service costs for the PFI business through tax revenue or local allocation taxes over the long term.