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Evaluation of the fiscal effect on municipal mergers: Quasi-experimental evidence from Japanese municipal data

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  • Hirota, Haruaki
  • Yunoue, Hideo

Abstract

The purpose of this paper is to evaluate a fiscal common pool problem in Japanese municipal mergers. Specifically, we investigate whether the merged municipalities rapidly increase their expenditures and bonds just before mergers. Because the likelihood of Japanese municipal mergers depends on a municipality's characteristics such as population size, area, and fiscal conditions, municipal mergers are a non-voluntary and non-random phenomenon in Japan. Therefore, we identify causal effects by applying propensity score matching within a differences-in-differences framework to address the problems of endogeneity bias and sample selection bias. In particular, we focus on the subordinate merger partner in absorption-type mergers. Our results show that the subordinate merger partner suffers from adverse fiscal conditions and creates a fiscal common pool problem in public projects just before mergers.

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  • Hirota, Haruaki & Yunoue, Hideo, 2017. "Evaluation of the fiscal effect on municipal mergers: Quasi-experimental evidence from Japanese municipal data," Regional Science and Urban Economics, Elsevier, vol. 66(C), pages 132-149.
    • Handle: RePEc:eee:regeco:v:66:y:2017:i:c:p:132-149
    DOI: 10.1016/j.regsciurbeco.2017.05.010
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    Citations

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    Cited by:

    1. Imai, Masami, 2022. "Local economic impacts of legislative malapportionment," Journal of Urban Economics, Elsevier, vol. 131(C).
    2. Xu, Hangtian & Zhou, Yiming, 2019. "Public housing provision and housing vacancies in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 53(C), pages 1-1.
    3. Hirota, Haruaki & Yunoue, Hideo, 2017. "The effects of the new fiscal rule and creative accounting: Empirical evidence from Japanese municipalities," MPRA Paper 79812, University Library of Munich, Germany.
    4. NISHITATENO Shuhei & Paul BURKE, 2022. "Effects of Low Emission Zones on Air Quality, New Vehicle Registrations, and Birthweights: Evidence from Japan," Discussion papers 22109, Research Institute of Economy, Trade and Industry (RIETI).
    5. Nobuo Akai & Tsuyoshi Goto, 2018. "Strategic Intertemporal Budget Allocation of Local Governments in the Model with Spillovers and Mergers," OSIPP Discussion Paper 18E011, Osaka School of International Public Policy, Osaka University.
    6. Davide Luca & Felix Modrego, 2021. "Stronger together? Assessing the causal effect of inter‐municipal cooperation on the efficiency of small Italian municipalities," Journal of Regional Science, Wiley Blackwell, vol. 61(1), pages 261-293, January.
    7. Tsuyoshi Goto & Genki Yamamoto, 2018. "Creative Accounting and Municipal Mergers -A Theoretical and Empirical Approach-," OSIPP Discussion Paper 18E012, Osaka School of International Public Policy, Osaka University.
    8. Bessho, Shun-ichiro & Hirota, Haruaki, 2023. "Do public account financial statements matter? Evidence from Japanese municipalities," European Journal of Political Economy, Elsevier, vol. 78(C).
    9. Hirota, Haruaki & Yunoue, Hideo, 2020. "Public investment and the fiscal common pool problem on municipal mergers in Japan," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 124-135.
    10. Hitoshi Saito & Haruaki Hirota & Hideo Yunoue & Miki Miyaki, 2023. "Do municipal mergers internalise spatial spillover effects? empirical evidence from Japanese municipalities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 70(2), pages 379-406, April.
    11. Masayoshi Hayashi & Takafumi Suzuki, 2018. "Municipal Mergers and Capitalization: Evaluating the Heisei Territorial Reform in Japan," CIRJE F-Series CIRJE-F-1105, CIRJE, Faculty of Economics, University of Tokyo.
    12. Blesse Sebastian & Rösel Felix, 2017. "Was bringen kommunale Gebietsreformen?: Kausale Evidenz zu Hoffnungen, Risiken und alternativen Instrumenten," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(4), pages 307-324, November.
    13. Tavares Antonio F., 2018. "Municipal amalgamations and their effects: a literature review," Miscellanea Geographica. Regional Studies on Development, Sciendo, vol. 22(1), pages 5-15, March.
    14. Tsuyoshi Goto & Sandra Sekgetle & Takashi Kuramoto, 2019. "Municipal Merger and Debt Issuance in South African Municipality," OSIPP Discussion Paper 19E001, Osaka School of International Public Policy, Osaka University.
    15. Hirota, Haruaki & Yunoue, Hideo, 2022. "Fiscal rules and creative accounting: Evidence from Japanese municipalities," Journal of the Japanese and International Economies, Elsevier, vol. 63(C).
    16. Saito, Hitoshi & Hirota, Haruaki & Yunoue, Hideo & Miyaki, Miki, 2017. "Does municipal mergers internalize spatial spillover effects? Empirical evidence from Japanese municipalities," MPRA Paper 76833, University Library of Munich, Germany.

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    More about this item

    Keywords

    Fiscal common pool problem; Municipal mergers; Propensity score matching with differences-in-differences; Average treatment effect on treated; Subordinate merger partner;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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