This study examines fiscal decline in relation to Japan’s demographically driven urban shrinkage, where population loss and hyper-aging—rather than the economic decline typical in the U.S. and Europe—affect municipal finances. Using structural equation modeling for 168 cities that adopted location normalization plans, the study tests whether rising housing vacancy reduces municipal tax revenue capacity and whether this weakened capacity, in turn, constrains fiscal leeway. The results confirm a significant indirect pathway: higher vacancy undermines tax revenue ( β = 0.422, p = .001), which in turn reduces fiscal leeway ( β = −0.498, p < .001). The model shows a good fit (Comparative Fit Index (CFI) = 0.978, Root Mean Square Error of Approximation (RMSEA) = 0.073). The study interprets this good-but-imperfect fit as evidence of omitted expenditure-side pressures—particularly aging-related costs, which constitute the demographic analog of the social distress factors emphasized in Western models. The findings contribute to refining the universality of fiscal “vicious cycle” theories and highlight Japan as a critical test case for these theories. Policy implications extend beyond density promotion to a stock-linked municipal fiscal planning approach that prioritizes the management of existing housing stock to mitigate vacancy-driven fiscal erosion.
Nobuo Kawahara (Wed,) studied this question.