This study examines the impact of donations made under the Hometown Tax Donation (HTD) system on local government expenditure. This study employs a mixed-methods approach that combines interview surveys with quantitative analysis, employing panel data analysis with instrumental variables. Hokkaido accounts for a relatively large share of the total HTD received when aggregated at the prefecture level. However, substantial variation exists among municipalities within Hokkaido in the amounts they receive. A key factor contributing to these differences is the availability of popular return gifts. Furthermore, reliance on return gifts poses challenges for municipalities in estimating their incoming HTD revenues, indicating that this revenue source is inherently unstable. This study shows that HTD revenue is probably accumulated in reserve funds while simultaneously increasing specific expenditures, such as welfare and sanitation costs. Thus, it offers new insights into the assessment of the HTD system.