When Formulas Go Political: The Curious Case of Japan's Financial Index

Abstract

AbstractScholars of distributive politics in Japan have shifted from large items in the general account budget to more geographically targeted spending known as intergovernmental transfers. However, a portion of the funds sent to prefectural governments are ostensibly determined by the apolitical ‘financial index’. However, even though the financial index is included in most studies of intergovernmental transfers, only slight attention focuses on the financial index and its determination. Using prefectural level data on intergovernmental transfers, economic indicators and electoral support for the LDP, this research shows that the LDP possesses strong incentives to manipulate the index and that politics is a significant determinant of the financial index.