ESRI Discussion Paper Series No.154
Local Government Bond and Local Financial Institutions
-Surveys on Local Financial Institutions and its Policy Implications-

September, 2005
Takero Doi
(Associate Professor, Faculty of Economics, Keio University; Visiting Fellow, Economic and Social Research Institute, Cabinet Office)
Tomoko Hayashi
(Director for International Economic Affairs, Cabinet Office)
Nobuyuki Suzuki
(Nomura Research Institute)

The full text is written in Japanese.


The outstanding of local government bonds in Japan has reached about 200 trillion yen. It is necessary to reduce not only the national government debt but also debts of the local governments to maintain the fiscal sustainability, and to evade financial crisis through rising interest rates of these debts. This paper investigates the current situation of the local government bond market, and consideration and behavior of regional banks as lenders through questionnaire surveys and interviews. Moreover, we discuss reform of the system of local government bonds and the decentralization of the local finance. From these surveys, we find the importance of strengthening market discipline to local governments and abolishing "implicit guarantee" by the central government. In addition, not only market discipline but also fiscal policy rules to prevent an increase in debts play an important role in the Japanese local government finance.

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