The Japanese employment market has a curious feature: there are regions of Japan with extremely high economic productivity (such as Tokyo, Osaka, and Nagoya, but for the purpose of this issue think “Tokyo” and you won’t be wrong) and regions with low economic productivity (substantially everywhere else). This counsels that a young person born and educated in e.g. Gifu move to Tokyo after graduation to earn a living.
Many, many do. While Japan’s overall population is declining, Tokyo’s increases by about 100,000 people per year.
The regions in Japan are not thrilled about this state of affairs for many reasons. Tokyo isn’t just the seat of Japanese commerce; it also houses the government, media, cultural institutions, etc etc. There is a real sense that your children moving to Tokyo causes them to lose connection with their culture and that the rewards from the national enterprise aren’t being allocated fairly. Tokyo, for its perspective, views the regions with the noblesse oblige that you would expect a cosmopolitan center of culture and learning to have with respect to their benighted country bumpkin cousins.
(If this sounds like it echoes the political economy of, say, two large English-speaking nations recently, well, folks greatly overestimate how different Western nations are from each other.)
Educating children is incredibly expensive. The regions are quite annoyed that they pay to educate their children but that Tokyo reaps all the benefits. This state of affairs has continued for decades.
But Japan has a policy response for it, and it is sort of beautiful. Called ふるさと納税 (Furusato Nouzei or, roughly, the Hometown Tax System), it works something like this:
A substantial portion of Japan’s income-based taxes are residence taxes, which are paid to the city and prefecture (think state) that one resides in, based on one’s income in the previous year. The rate is a flat 10% of taxed income; due to quirks of calculating this which almost certainly aren’t relevant to you, you can estimate this as 8% of what white collar employees think their salary is.
Furusato Nouzei allows you to donate up to 40% of next year’s residence tax to one or many cities/prefectures of your choice, in return for a 1:1 credit on your tax next year. This is entirely opt-in. Anyone can participate, regardless of where they live.
In principle, the idea is to donate to one’s hometown. Importantly, one actually has unfettered discretion as to which city/prefecture one donates to. This has some very important implications discussed later.
Relevantly to your understanding of the incentives here: most Japanese people do not file taxes every year. Income-based taxes are calculated and remitted by employers directly on the behalf of their employees. Participating in the system requires friction which is somewhat above e.g. changing your direct deposit information but far below e.g. filing a tax return.