This paper assesses the impact on local government budget of the rearrangement of central-local fiscal relationship under proposal in Japan, or the so-called Trinity Reform, where it is proposed that some of the tax base be handed from the central to the local governments, in conjunction with drastic cut in both transfer of the tax revenue and a collection of subsidies. The tool used for this objective is the Nagoya City University Econometric Model (NCUEi 2003) whose core system has been duly modified to simulate proposals, and also to investigate the performance of the local economy under the strain of declining and aging population. The object case taken up in this paper is Nagoya City. The model is characterized by the market adjustment of the regional total demandsupply balance, where the age distribution of the population is incorporated so as to assess the impact of the demographic change both on the total demand and productive capacity. The forecast and simulations show that while the abovementioned Reform generates persistent unfavorable impact to the local government, the dominant negative impact comes from the demographic change, in terms of the primary balance of Nagoya City. Unless proper measures are to be taken, the simulations indicate, the local government's fiscal soundness will hardly be maintained under the two major pressures, one from the fiscal decentralization as represented in the subsidy cut-cum-tax base transfer and the other from the demographic change. The simulation of the abovementioned reform reveals that it definitely worsens the primary balance of the locality, and implies that practically an additional transfer of consumption tax must accompany this reform, even for one of the most favorable localities like Nagoya where its major industrial sectors, or the automobile-industry-led industries in this case, are steadily growing. The implication will be obvious for localities where economy is less favorable.