Public Nursery School Costs and the Effects of the Funding Reforms in Japan

Using a panel dataset of 983 municipalities across Japan, this article investigates the impact of the funding reforms in 2004 on public nursery schools’ operating costs. We found that municipalities responded differently to the reforms, depending on their fiscal strength and city scale. In areas with relatively large populations, fiscally stronger municipalities were likely to spend less on public nursery schools in the wake of the reforms, while municipalities in smaller cities spent more. Besides, municipalities that were not compensated for the loss of the national subsidy reduced expenditures in large cities. In small cities, on the other hand, such municipalities actually increased expenditures.