The new size-based tax on big banks that has been introduced by Tokyo Gov. Shintaro Ishihara is causing major repercussions and prompting Osaka Prefecture to consider a similar tax.

However, moves like these are also prime opportunities to examine the way local governments are managed.

In Japan, public-sector revenues are disbursed to the national and local governments at ratio of 3-to-2, while expenditures are saddled at a ratio of 2-to-3. This is because the state passes down a portion of its national tax revenue to them as grants and subsidies.