Reducing public debt is one of the most urgent issues for local governments in Japan. In this paper, I focus on the political aspect of this problem and examine the relationship between fiscal efficiency and gubernatorial turnover in local governments. The main purpose of this paper is to assess the governors' Moral Hazard problem called “Kenpu-Jyunen.” (An epigram: Over ten years of the same administration makes governments corrupt.)
Using panel data of 47 prefectures from FY 1976 to FY 1999, I find U-shaped relationship between the governors' tenure of office and the increase of the net debt and/or the primary deficit. More specifically, as the governor's tenure lasts, its administration becomes more efficient for up to twelve years. However when he keeps in power beyond twelve years (over three times of reelections), harmful effects of reelection turn out and it becomes less efficient. In addition, we find administration becomes more efficient as the governor's age of inauguration is high, and as the prefectural assembly is more solid in supporting the governor.
This finding suggests that administrative and fiscal discipline in local governments could not work well due to the Moral Hazard when long tenure weakens the pressure of gubernatorial turnover. In the trend toward the decentralization, governors' authority and responsibility are supposed to be intensified. Correspondingly, we should have more profound discussion on the introduction of governor's term limits as a rule of democracy.

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