Ending the race for return gifts: Do gift caps in the Furusato Nozei program work?

Yusuke Makino and Hikaru Ogawa
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Yusuke Makino: Graduate School of Economics, The University of Tokyo

No CIRJE-F-1254, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper examines the effects of a regulation aimed at mitigating competition among municipalities to attract donations by offering return gifts under Japan’s Furusato Nozei program. The main theoretical finding is as follows: when a cap is imposed on the return gift rate for donations, both regulated and unregulated municipalities reduce their return gift rates, thereby lessening competition. However, the reduction in return gift rates induced by the cap may incentivize municipalities that had previously refrained from competing to newly enter the competition, potentially intensifying overall competition. A comparison of descriptive data before and after the introduction of the regulation reveals that municipal responses are consistent with the theoretical predictions.

Pages: 22 pages
Date: 2025-06
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2025cf1254

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