Since prior to the so-called “large-scale municipal mergers of the Heisei Era,” it was possible for the utilization of “business bonds as a measure against depopulation,” to have an inclusion rate of 70%, which is higher than for other business bonds, for tax allocated to local governments for repayment of principal and interest by municipalities designated as depopulating areas. However, when a municipality merges with another municipality, the issuance of “special merger bonds,” which have the same inclusion rate of 70% for tax allocated to local governments for repayment of principal and interest, was approved in addition to business bonds as a measure against depopulation. While there have been studies carried out previously concerning the impact that designation as a depopulating area and merger have on the financial condition of municipalities, we found few studies conducted concerning methods to perform analysis of impacts exerted to the financial condition and to make use of the analysis results for financial management in the event of merger of a depopulating municipality. Accordingly, this study firstly touches on the legislative facts and the like, of the “Act on Special Measures for Promotion for Independence for Underpopulated Areas” and the “former Special Mergers Law,” introduces previous studies on the relationship between inclusion in tax allocated to local governments for the repayment of principal and interest and reserved funds in the calculation of tax allocated to local governments and statistically analyzes the impact that the two factors of designation as a depopulating area and merger have on the financial situation of municipalities. The results have shown a tendency for depopulating municipalities to reduce their local bond balance irrespective of whether the depopulating municipality has merged and to increase fund balances, while merged municipalities of non-depopulating areas have tended to increase their local bond balance. However, there are municipalities even among the depopulating municipalities that are increasing their local bond balance and since such municipalities have little capacity to be able to absorb the costs of public debt that are not included in the amount of standard fiscal demand, the results confirmed the necessity to establish fiscal rules equal to or above the standard stipulated by the government. Accordingly, this study estimates the real debt service ratio corresponding to the financial strength, with reference to previous studies and presents this as a model of fiscal rules that are of practical use in making policies and creating fiscal plans related to investments in depopulating municipalities.
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