A Proposal for Hometown Tax Strategy by Data Envelopment Analysis

—Case Study of the Hometown Tax in K City—

Abstract

Hometown tax allows taxpayers to donate to any municipality of their choices. In return, the taxpayer receives local gifts from the municipality to which the donation was made (i.e., except for the municipality where the taxpayer resides) and tax breaks. In recent years, the competition among local governments to attract donations has become increasingly fierce. In this paper, the efficiencies of all effective municipalities in Japan, local collaborative manufacturers and local gifts in K City are analyzed by data envelopment analysis (DEA). Based on the efficiencies and improvement values, we will answer two questions that concern K City: (1) What is the strength of K City to attract the payment of hometown tax? (2) How can the lineup of gifts be modified to enhance the city's competitiveness? We first compare the efficiencies, input, and output values of other municipalities with K City to find its strength, weakness, and reference set. Then modification proposals regarding the gift lineup are made by cross analysis on the efficiencies of local collaborative manufacturers and local gifts.