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The recent Trinity Reform of local public finances in Japan deals with simultaneous reforms on local tax, local allocation tax, and national subsidy. The main contents are: the enhancement of unconditional grants(local allocation tax) by reducing conditional grants(national subsidy) and the transfer from national to local tax base. The local budget in Japan confronts severe soft budget constraints, which cause inefficiency in its operation. On the other hand, Korea has experienced a relative decrease of shares in economic development expenditures and capital expenditures of local governments, and a harsh increase of local allocation taxes since the introduction of local autonomy in 1995. Some policy implications can be drawn from Japan's local public finance features and operations: establish the budget of local governments with a hard structure and achieve the benefit principle in the local tax system by constructing a comprehensive property tax with reference to the fixed assets tax in Japan.
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