This study aims to investigate intracity fiscal transfers from the city planning areas (CPAs) to outside the city planning areas (non-CPAs) that are not recorded on the municipal account settlement cards and to estimate the existence and amount of these transfers. The current location optimization plan in Japan attempts to realize compact cities by defining residential zones and urban function zones and by providing preferential tax treatment. Nevertheless, the location optimization plan does not cover non-CPAs, which means that the location optimization plan does not function for non-CPAs, and this is considered a social issue. Non-CPAs have low population density, and based on previous studies, the fiscal efficiency of non-CPAs is considered low. Intracity fiscal transfers are probably made from CPAs to non-CPAs, just as so-called intergovernmental fiscal transfers have a horizontal fiscal adjustment function. In this study, we refer to this intracity fiscal transfer as stealth fiscal transfer (SFT). To estimate the SFT, we estimated the average expenditure function using five-year data from FY1990 to FY2010 and we simulated the SFT for FY2005 and FY2010 using the estimated average expenditure function and mesh data. By estimating SFT, the existence and amount of SFT will be revealed, and as a policy implication, an academic basis for expanding the scope of the location optimization plan will be derived. The simulation results showed that CPAs, the payers of SFT, were estimated to have paid a national weighted average of ￥19,218 per capita in FY2005 and ￥18,360 per capita in FY2010. Conversely, non-CPA, the recipient of SFT, was estimated to have received a national weighted average of ￥164,017 per capita in FY2005 and ￥171,360 per capita in FY2010. The total value of SFT in Japan was estimated to be ￥1,104,830,463,745 in FY2005 and ￥1,062,534,779,839 in FY2010. Although the location optimization plan is a plan for CPAs, the policy implication derived from this study is that in the future, the location optimization plan is expected to cover not only CPAs but also the entire area within a municipality, including non-CPAs.
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