Do public account financial statements matter? Evidence from Japanese municipalities✩

Many governments are introducing business-like accounting systems. This paper examines the fiscal effects of compiling business-like financial statements on the expenditures of local govern-ments in Japan as a complement to cash-based reporting. Using the variation in the deadlines for compiling new statements given by the central government in a difference-in-differences instrumental variable approach, we found that business-like financial statements have limited effects on municipalities' expenditures but have short-run effects on social assistance expenses. This might be a part of the reconstruction of their expenditure structure.