Week in Insights: Japan’s ‘Hometown Tax’ Bolsters Rural Education

Japan has found an innovative and elegant approach to fostering regional economic development in rural areas—the Furusato Nozei, or “hometown tax.”

The hometown tax system allows taxpayers to redirect some of their income tax to a region of their choice in exchange for local goods or services from that region. The program was conceived to reduce the financial imbalance between urban and rural areas, especially in education.

The fluidity of determining one’s hometown has led to new online marketplaces and a cottage industry for rural areas that seek to have the best incentives for potential “donors.” The program has ...