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Research on the effective use of the Revenue Bond

summary

This paper specifies the public finance for social infrastructure in Japan and the Revenue Bond scheme in the United States, and suggests how the Revenue Bond scheme can be introduced into Japan, based on the comparative analysis and case studies in these two countries. We also make investigation and analysis of Japanese municipal bonds and PFI cases. Revenue Bonds are the important securities in the municipal bond markets. The principal and interest repayments of Revenue Bonds depend on only its own revenue stream. This is the most important difference compared with Japanese municipal bonds, which are guaranteed by national government credit and less effectively disciplined by financial market mechanism.
We put emphasis on disciplined efficiency and marketable attractiveness for investors and issuers in public finance, especially when the fiscal situations of national and local governments are severe as those in Japan. The Revenue Bond scheme is effective on the ground that investors evaluate and monitor projects in terms of profitability, stability and attractiveness. On the other hand issuers take care of efficient management for social infrastructure. The incentive mechanism embedded in Revenue Bonds works with various sub-systems --- tax, information disclosure, bankruptcy law, etc. Additionally mono-line insurers, rating companies and institutional investors also play important roles.
Recently Japanese public finance for social infrastructure has been progressed and diversified by PFI, PPP and some target bonds. Revenue Bonds will be new and effective tools for efficient management of social infrastructure in Japan, when related institutions and sub-systems are provided.

Key words

Revenue Bond, social infrastructure, public finance, disciplined efficiency, marketable attractiveness

issue

Reports No.56/2005 Oct.

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