This article analyses the difference in the rates of an increase in fiscal deficits between central and local government in Japan. Since the mid 1970s, central government had boosted its own deficits, whereas local government deficits had grown at a slow pace.
  The existing literature stresses the importance of the institutional arrangement which biased in favour of the Ministry of Home Affairs (MoHA), responsible for local government finance. However, it fails to explain why, during the periods of 1975-84 and 1989-98, there was a marked increase in central government deficits, despite a slight increase in local government deficits.
  In this article, I argue that the political game of local government finance among the ruling Liberal Democratic Party (LDP), the MoHA, and the Ministry of Finance (MoF) does matter in explaining the unique pattern of Japanese fiscal deficits. The LDP, encountering the political instability, preferred fiscal expansion without taxation. Knowing the LDP’ policy preference, the MoHA strongly requested the MoF to raise the unconditional lump-sum grants to local government. As a result of the LDP's influence, the MoF reluctantly surrendered to the MoHA.

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Public investment is one of the most effective administrative measures by which the central government controls local government. This phenomenon is particularly evident in the case of regional development policy since the 1950's. The author seeks to determine the extent of the changes in local party organizations and activities under the pressure of the regional development policy. The conservative party's local chapters have been changing from the traditional “solid” machines based on traditional communities and developing into “functional vote-getting” machines. The leadership of the Socialist Party's local chapters has been swiftly shifting from farmers' unions to labor unions. Policy differences are also reflected: the conservatives stress direct connection between the central and local governments, whereas the socialists strive for close relationship between local government and local inhabitants. However, in general, local government clearly reflects the deficiencies of the central government.
1. National policy and local politics.
2. The Liberal Democratic Party—organization and role of the prefectural federation of local chapters; endorsement process of party candidates for public offices; prefectural assemblymen and Diet representatives; candidate-supporting associations; professionalization of prefectural assemblymen; realignment of conservative control.
3. The Socialist Party—local organizations; daily activities; electioneering; system power and movement power.

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