In this paper, we analyze the structure of the standard fiscal needs of local-allocation-tax grants and their chronological changes in ten years.
The local-allocation-tax grants have been said to have both the fiscal guarantee and coordination function. The revenue source of the local-allocation-tax grants is some 30% of the five national taxes. This fund is allocated to the local governments consisted of prefectures and municipalities according to the some objective standard.
This allocation standard consists of both needs and revenue factors. The revenue factor, namely the standard fiscal revenue, of each local government is related to some portion (80% in prefecture and 75% in municipality) of local taxes. The needs factor, namely the standard fiscal needs, of each local government is calculated by the rational and objective index.
It is seemed that there is neither political nor discretional influence in this formula. But in spite of the seeming objectiveness, the standard fiscal needs has been said to be calculated discretionally these ten years.
In this paper, we estimate the degree of the discretion influence of the calculated standard fiscal needs of all prefectures and investigate the structure and the causes of change in ten years.
We conclude that there is some discretional bias in the formula of the standard fiscal needs, not necessarily related to the weakness of fiscal capacity of local government.