The Distribution of Functions between Local and Central Government in River and Road Administration and Finance: With Regard to Spillover Measures

Economists have proposed several methods for providing local public goods such as rivers and roads whose benefits spill over to neighboring regions: (1) direct central government provision; (2) local government provision, with fixed-rate central government subsidies as incentives; and (3) provision in accordance with negotiations between local governments. This article takes up rivers and roads as examples of local public goods that have spillover benefits, and examines how the river and road administration and finance systems in Japan are positioned in terms of spillover measures. Three characteristics of the river and road administration and finance systems can be identified: (1) when national and local governments divide roles between them, the conditions under which central government directly provides local public goods include those related to spillover benefits, and it can be said that while a certain degree of consideration is given to spillover benefits, central government often directly manages local public goods irrespective of spillover benefits; (2) when national and local governments share the costs for provision of local public goods, the former covers a certain percentage of costs irrespective of the degree of spillover benefits, but there is a system that local governments share the costs according to the benefit principle, and in fact, such a system is being used effectively for rivers; and (3) negotiations are held between local governments about the management of and the sharing of costs for class B rivers, national expressways that managed by local governments, and local roads. Therefore, the point can be made that spillover measures through negotiations between local governments, though limited, are functioning properly.