Public nursery school costs and the effects of the funding reforms in Japan

With the social demand for childcare service diversifying and local governments becoming increasingly cash-strapped, the proportion of public nursery schools in the childcare sector has been shrinking in recent years. The funding reforms of 2004, which abolished the national subsidy to public nursery schools, are seen as one of the triggers of this phenomenon. Using a panel dataset of 983 municipalities across the nation, this paper investigates the impact of the reforms on the operating costs of public nursery schools. We found that different municipalities responded differently to the reforms. In areas with relatively large populations, fiscally stronger municipalities were likely to spend less on public nursery schools in the wake of the reforms, while municipalities in smaller cities spent more. Besides, municipalities that were not compensated for the loss of the national subsidy reduced expenditures in large cities. In small cities, on the other hand, such municipalities actually increased expenditures.