public works projects under the Remote Islands Development Laws are provided as part of the
budget of the Japanese Ministry of Land, Infrastructure, and Transport and are distributed among
all the government ministries, agencies, and municipalities concerned. The remote islands also
benefit from other programs, such as financial support for economic development in depopulated
areas, which is a grant program providing a higher proportion of grants for projects under the
Remote Islands Development Laws and municipal bond funds. Most projects are implemented by
local municipalities, although some projects, such as shore protection, flood control, conservation
reserves, airport development, and harbor improvement, are carried out by the central government.
According to the Handbook of Remote Islands Development 2004, the Remote Islands
Development Laws cover 315 islands, with more than 737,000 people (0.6% of the total
population) as of April 2001. The total project cost for economic development in remote islands
amounts to around 160 billion yen annually, which is equal to 1.7% of total public works
expenditure. This shows that the government invests quite a large sum of money per capita in
remote islands. However, the population in remote islands has been decreasing. The National
Census reports that the population of remote islands declined by 7.2% from 1995 to 2000 whereas
the total population grew by 1.1%.
Since Japan’s economic bubble burst in 1991, the Japanese government’s severe financial
difficulties seem to have worsened, due to the effect of the aging population3. This has resulted in
a drastic reduction in financial assistance for promoting economic development in remote islands:
the share of general expenditure for public works in remote islands decreased from 1.70% in 2001
to 1.57% in 2004. We also note that decentralization, which has been driven rapidly by the merger
of municipalities since 19994, is intended to cut financial expenditure by local governments. The
number of municipalities that supervise remote islands decreased from 221 in April 1998 to 210 in
April 2003 in accordance with the promotion of amalgamating municipalities.
On the other hand, the Japanese government has kicked off a nationwide tourism campaign
named “YOKOSO! JAPAN (Welcome to Japan!)” to attract millions of inbound tourists.
According to the Japan National Tourist Organization, there is a large gap between the number of
outbound and inbound tourists: in 2005, there were about 17.4 million outbound tourists, whereas
the number of inbound tourists was estimated at approximately 6.7 million. The Japanese
government has pushed forward with policies to attract foreign tourists in order to revitalize the
local and national economies. This indicates that tourism development is expected to be an
important and effective economic measure for local regions including remote islands. However,
there has been no empirical analysis of whether tourism development in remote islands can be a
substitute for financial assistance from the central government.
In this paper, we investigate the effectiveness of tourism development in remote islands as an
economic measure. In particular, we examine the impact of fiscal expenditure of municipalities
that supervise remote islands5 and the number of tourists on per capita taxable income in remote
islands using a panel data analysis.