Do local allocation tax grants boost the issuance of road bonds? Evidence from Japan’s local governments

Abstract

This study, by focusing on road construction projects in Japan’s local governments, conducts an empirical analysis of the relationship between the issuance of extraordinary local road improvement project bonds (subsequently abbreviated as “road bonds”) and the rate at which the redemption of the principal and interest on these bonds factors into standard financial needs (subsequently abbreviated as “inclusion rate”). Furthermore, it analyzes whether the value of local road bonds approved varies with the inclusion rate. Our analysis indicates that road bonds can be said to be linked to national treasury grants even if there exists a local allocation tax measures that allows for the redemption of the principal and interest on local bonds because local specified road maintenance and improvement projects (subsequently, “the specified projects”) combine local public subsidized projects and local public non-subsidized projects.