Abstract
In Japan, most of public expenditures are spent through local governments. As such, the central government has to “mobilize" local expenditures when it takes stimulus economicpolicy. When stimulus economic measures areplanned, they constitute parts of the annual estimate of aggregate local expenditures which the Ministry of Internal Affairs and Communications (MIC) projects in the Local PublicFinance Program (LPFP). The LPFP annually frames the aggregate size of local expenditures.It is often claimed to be important for the MIC to keep the discrepancies between the estimated local expenditures and actual expenditures minimal so that it could maintain the legitimacy of the LPFP. A popular view is therefore that, when stimulus packages are includedin the LPFP, the MIC might make every effort to make local governments spend as much as they are planned in the LPFP. In Japan, central ministries, notably the Ministry of Finance(MOF) and the MIC, temporarily transfer their personnel to the key budgeting positions in a majority of prefectural governments. Our conjecture is therefore that prefectures where budgeting directors are temporarily transferred from the MIC tend to be more lenient on spending funds related to the stimulus packages. We empirically investigate this conjecture using a panel of 47 prefectures. Our result shows that, in contrast to our anticipation, prefectures with budgeting directors transferred from the MIC do no spend more than prefectures with their own directors, although prefectures where their budgeting directors are temporarily transferred from the MOF tend to spend less.
