The Effects of Central Grants on
Decentralized Social Programs:
Post‐2005 School Expense Assistance in Japan

Masayoshi Hayashi
Yohei Kobayashi

March 2010


This study examines the effects of central matching grants for the School Expense Assistance (SEA) in the midst of increasing child poverty in Japan. The 2005 reform replaced SEA grants with increases in general revenues through the system of Local Allocation Tax (LAT). By exploiting the facts that the replaced grants were closed‐ended and that LAT disbursements were not made to every locality, we could not only identify the effects of the matching grants but also decompose the effects into price and income effects. We show that the 2005 change indeed suppressed SEA expenditures. The loss of matching grants reduced per‐recipient SEA benefits by about JPN¥5,000 (US$56) for first‐year elementary school students and JPN¥12,000 (US$133) for first‐year junior high school students. The loss also reduced recipient percentage among students by 1.2–2.1 percentage points from 11.52 percent in 2004, although the eligibility criteria were barely affected.

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