In this paper we analyzed the calculation structure and the allocation result of the local (normal) allocation grant system. Based on the analytical framework of previous papers (1986, 1987), several regression analyses were attempted, using 1993 municipal data and also adding a few new viewpoints. Let us summarize the estimation results.
First of all, it was shown that the total sum of basic public demand for each municipality could be almost explained by its population and area. While the calculation structure is skillfully set up by the national government, it seems that even if the calculation procedure would be simply arranged just according to population and area, the allocation result would not be much different.
Secondly, we saw that a per capita basic public demand has the U-shaped structure for both population and area, when taking the variables in logarithm. This structure was becoming more stable in past two decades. Also we noticed that the level of a per capita basic public demand was growing faster than other economic indicators or public expenditure. It means that the level has been raised gradually in a real term.
Thirdly, it was observed that a per capita basic public demand was more expanded among relatively small cities in population. It means that redistribution to those cities is reinforced. We are concerned about that such redistribution effect takes the incentive to strive for getting tax revenues from municipalities. So we assert that the linkage of a grant to a local tax should be knocked off.
Fourthly, it was shown that when the expenses from local bonds were included into the explanatory variables of basic public demand in addition to population and area, more than 99 percentage of that level could be explained. This result reflects the mechanism in which local allocation grants cover the expenses from local debts in after years. We also worried about that this mechanism was helping expansion of basic public demand. That is to say, the spiral expansion of a local allocation grant and a local public bond has finally contributed to fiscal crisis of local governments.

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