Sustainable development of rural regions: metafrontier data envelopment analysis of hometown tax in municipality K

Abstract

Hometown tax is a unique system in Japan that allows people to donate to any municipality of their choice, and donors in turn receive tax benefits and reciprocal gifts under specific conditions. This system was initially introduced in 2008 for the revitalization and sustainable development of rural municipalities by reducing the tax revenue gaps with urban areas. To attract more donations, the competition over reciprocal gifts among municipalities has intensified in recent years. In 2019, the government issued strict regulations on the gifts to prevent municipalities from giving excessively high-value goods. Hence, most municipalities face pressures to review and adjust the gift lineup to maintain competitiveness and acquire stable independent tax revenue under the new regulations. This study selected municipality K as an example and utilized the metafrontier data envelopment analysis to obtain insights into the performance of various groups of reciprocal gifts and gift providers with different production frontiers. The cross-analysis of the metafrontier efficiencies, the group frontier efficiencies, and metatechnology ratios showed that: (1) the gift lineups of drinks, vegetables, fruits, rice, and tickets with relatively lower metafrontier efficiencies and metatechnology ratios need to be investigated and adjusted with higher priority; (2) providers of drinks & alcohol, vegetables & fruits, daily necessities & ornaments, and tickets performed poorer than other providers. Based on our analysis, we presented a comprehensive gift lineup adjustment proposal for municipality K that can also be taken as a reference analysis model for other municipalities.