The results show that the number of tourists has no significant and positive impact on per
capita taxable income in remote islands. In other words, continuous financial support may be
needed to maintain islands’ economies. Furthermore, shrinking populations also have a large
negative impact on the islands’ economies. This indicates that the islands’ economies would
worsen if the residents were forced to relocate to the mainland as a result of a further decrease in
financial aid to remote islands.
The paper consists of three sections. In the next section, we explain the panel data used in
this study and conduct an empirical analysis to estimate the impact of fiscal expenditure on
municipalities and the number of tourists on per capita taxable income in remote islands. The final
section presents conclusions based on demographic, social, and economic trends, and discusses
implications for further research.
EMPIRICAL ANALYSIS
We conducted an empirical analysis of the islands under the Remote Islands Development
Laws. There are 315 islands and 214 municipalities (54 cities, 115 towns, and 45 villages) that
supervise the islands as of April 20026. We use a linear regression model, in which per capita
taxable income is expressed as a linear combination of dependent variables such as per capita
fiscal expenditure, the number of tourists per capita, and population size7 . We also note that
taxable income and fiscal expenditure are deflated by the national consumer price index (based on
2000 figures).
There is a need for a careful examination of the data before an empirical analysis. We had to
analyze two kinds of data: municipality-based data (population size, fiscal expenditure, and
taxable income) and island-based data (the number of tourists). We show further details of each
type of data in Table 1. To analyze these more easily and clearly, we defined the “island regions”
as outlined below to make the island authorities correspond to the municipal authorities, and use
the data recalculated by each island region.
To assist understanding, we provide an illustration of two islands (Islands 1 and 2) that are
divided into three parts (A, B, and C) and two parts of the mainland (D and E) in Fig. 1. We also
assume that both Islands 1 and 2 are under the Remote Islands Development Laws.
First, we consider the case in which one or more municipalities take charge only of islands. If
one municipality supervises Island 1 (A), we define the island region as Island 1 (A) itself. If two
municipalities share parts of two islands (A + B and C), the island region is defined as both
Islands 1 and 2 (A + B + C).
If a municipality supervises Island 1 as well as a part of the mainland (D), we denote the
island region as Region (A + D). We also note that there are some cases in which two
municipalities share parts of two islands and each of them supervises a part of the mainland (A +
B + D and E + C). Then the island region is defined as Region (A + B + C + D + E).
We obtain 165 island regions using all of the available data, 124 after excluding missing