The effects of the new fiscal rule and creative accounting: Empirical evidence from Japanese municipalities with Hideo Yunoue

Crawford School of Public Policy | Australia-Japan Research Centre

Event details

Public Seminar

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Date & time

Wednesday 31 October 2018
11.00am–12.00pm

Venue

Seminar Room 3, Level 1, JG Crawford Building 132, Lennox Crossing, ANU

Speaker

Haruaki Hirota (Musashi University)

Contacts

Thomas Home

The purpose of this paper is to analyse creative accounting by fiscal adjustments in Japanese municipalities after the introduction of a new fiscal rule using a seemingly unrelated regression with the difference in differences method. We contribute to the literature by analysing the interdependency of new fiscal indexes, which include three flow indexes and one stock index, and identifying the causal effects of the new fiscal rule. In addition, we focus on both the ‘targeted indexes’ and ‘untargeted indexes’ of the new fiscal rule because some municipalities might take advantage of loopholes in the new fiscal rule to improve their ‘targeted indexes’. Our main contribution is the finding that municipalities increase their money transfers to public enterprise accounts, which is one of ‘untargeted indexes’, after the introduction of the new fiscal rule to avoid the applicable punishments. This phenomenon is creative accounting by fiscal adjustments because municipalities postpone improving their true fiscal deficits.

Haruaki Hirota is a Professor at Musashi University in Japan and committee member of Japan’s decentralisation reform of the Ministry of Internal Affairs and Communications. His research interest is public economics, local public finance, local government mergers and fiscal consolidation in Japan. He was the Visiting Fellow at the AJRC of the Crawford School of Public Policy from 2016 to 2017.

A light lunch will be provided.

The AJRC Seminar Series is a forum for researchers to engage on issues relevant to Japan. Topics include, but are not limited to, economics, international relations, politics, and national security. Seminars are typically very frank and early stage studies are most welcome.

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