Regional and structural components of taxable income growth in Japan between 1970 and 2005

Abstract

In the present paper we use the shift-share analysis to determine the effects of two components which influence the distribution of incomes: the effect of regional dynamics and the impact of the structural component (in this case represented by the settlement structure). Our main objective is to decide which components have had an effect on the 47 prefectures of Japan during the 35 years examined (between 1970 and 2005).

A special subordinative relationship exists between the Japanese national economic development planning and regional development policy derived from the logic of the Japanese developmental state. After the Second World War, the Japanese national economic development policy has primarily designated growth-oriented goals and has given high priority to efficiency. In contrast, the main task of Japanese regional development policy is the subsequent correction of the inequalities caused by national economic planning. Consequently, it typically has a reactive, rectifying function which prefers equity over efficiency.

Our results confirm that this subordinative relationship is only effective as long as the national economic policy (considering it as first pillar) can generate economic growth, and its effect reflected in billions of yen contributes to the balanced development of the Japanese prefectures. According to the results of the shift-share analysis this subordinative relationship between the national economic policy and the regional development policy was very effective in Japan until the 1970s.

Between 1970 and 1975 – in the era of high growth – the main aim of the Japanese regional policy was to distribute the existing industrial base of the country more evenly in order to correct the imbalances generated by the merely efficiency-oriented national economic planning. However, the observable regional divergence during this period was primarily caused by the utilisation of the favourable international environment, and, on the other hand, by some natural processes within the country (e.g. population growth, consequences of metropolitan congestion). After 1975, regional policy needed to correct the territorial inequalities in a steadily increasing manner. Results of the shift-share analysis for the period between 1975 and 1984 point towards an acceleration of new regional inequalities which supports the view that in the final analysis regional policy was futile.

1990 was a turning point again, regional inequalities decreased and most of the nonmetropolitan prefectures showed a more favourable income situation when compared to the national average. Although it was possible to temporarily alleviate the inequalities due to a huge amount of national savings derived from the previous decades’ economic growth, it turned out that grandiose economic stimuli packages were ineffective in the long-run and resulted only in a hugely embarrassing public debt for Japan. After 2001 the reformer, Prime Minister Junichiro Koizumi made enormous efforts to eliminate the vested interests related to the Japanese developmental state system. Serious changes occurred owing to the reforms introduced in Japanese politics. But they were not enough to basically restructure the developmental state model.