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

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  • Hirota, Haruaki
  • Yunoue, Hideo

Abstract

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

Suggested Citation

  • Hirota, Haruaki & Yunoue, Hideo, 2017. "The effects of the new fiscal rule and creative accounting: Empirical evidence from Japanese municipalities," MPRA Paper 98861, University Library of Munich, Germany, revised 28 Feb 2020.
    • Handle: RePEc:pra:mprapa:98861
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    Cited by:

    1. Tsuyoshi Goto & Genki Yamamoto, 2018. "Creative Accounting and Municipal Mergers -A Theoretical and Empirical Approach-," OSIPP Discussion Paper 18E012, Osaka School of International Public Policy, Osaka University.
    2. Bessho, Shun-ichiro & Hirota, Haruaki, 2023. "Do public account financial statements matter? Evidence from Japanese municipalities," European Journal of Political Economy, Elsevier, vol. 78(C).
    3. Iwona Franczak, 2021. "Creative Accounting in Poland’s Sub-Sector of Local Governments," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 997-1017.

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    More about this item

    Keywords

    fiscal rule; creative accounting; stock-flow adjustments;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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