Understanding Industrial Waste Disposal Tax and Factors that Halted its Expansion from the Perspective of Interregional Waste Transfer and Strategic Interdependence among Local Governments

Abstract

This study clarifies the mechanism of the expansion of the introduction of the industrial waste disposal tax as a non-statutory earmarked tax by prefectures in Japan since FY2002. It further clarifies the reasons for the subsequent suspension of this expansion. First, we confirm strategic interdependence by estimating reaction functions based on panel data of 47 prefectures. Second, we employ established methodology to explain the impact of taxes on the amount of industrial waste transferred among prefectures. Evidently, the expansion by FY2007 was likely due to yardstick competition among prefectures than a spillover effect caused by interregional transfer of industrial waste owing to taxation. When considering the results of estimation based on the Probit model, we find that prefectures halted tax introduction after FY2008 following Tokyo and Osaka Prefecture’s refusal to do the same, and also because of the industrial structure of each prefecture, among other factors. JEL codes: H23, H71, H77