Quality infrastructure investment Japanese case studies

Toyama City is the prefectural capital of Toyama Prefecture and it has a population of 420,000, ranking 22nd of 47 prefectural capitals in Japan. The city is located at the middle of Honshu Island (Figure 1.1). With ¥3.2 million in gross domestic product (GDP) per capita, Toyama City falls just behind the government-designated major cities, which are the top 20 cities in Japan (Japan, Cabinet Office 2016). In terms of financial capacity, Toyama City’s annual revenue of ¥166 billion and its fiscal index of 0.83 are above average of core cities, which are defined as cities with populations greater than 200,000 (non-exhaustive) (Figure 1.2) (Japan, Ministry of Internal Affairs and Communications 2018). As with many other cities, in the 2000s, Toyama City faced many challenges caused by urban sprawl and an aging and declining population. The city had a population density of about 330 people/km2, which was one of the lowest among prefectural capitals. An overdependence on cars led to the deterioration of public transport services, and central areas were losing vibrancy due to extensive suburban development (Higashide 2020).
To better understand the challenges Toyama City faces, it is important to understand the demographic and economic situation in Japan. After the World War II, Japan experienced a rapid growth period from 1950 to 1970. During this period, the economy grew nearly 10 percent per annum and the population grew around 1 percent per annum. However, the oil shock in 1973 triggered a transition to a more moderate economic growth of about 4 percent per annum. The population growth rate began to decline, and by the 1990s, it was well below 0.5 percent. From the 1990s to present, Japan has muddled through a long and persistent recession. The annual GDP growth rate dropped to about 1 percent and the population growth rate turned negative around 2010 (Japan, Cabinet Office 2020). Furthermore, population aging is now a nationwide issue. The percentage of the population aged over 65 was 4.9 percent in 1950—today it is nearing 30 percent and it is still rising (Japan, Cabinet Office 2019). Municipal finance has been hit hard by an ailing national economy. Since the 1990s, many local governments have been faced with fiscal issues that are still persistent today. Amid the long recession, local governments’ expenditures have increased in part because of an aggressive increase in public works by the national government as an economic stimulus. As a result, many local governments are issuing more bonds and withdrawing cash from their reserves to sustain their essential public services. At the same time, the revenue of local governments is decreasing mainly due to a reduction in tax revenues (Japan, Cabinet Office 2001). As a result, the fiscal index of an average Japanese municipality is about 0.5, which means local governments are getting only half of what they actually need (see Figure 1.2).

source :

https://openknowledge.worldbank.org/entities/publication/65068d5b-0048-5c40-9db6-c2d47e6668a6