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Strategic Intertemporal Budget Allocation of Local Governments in the Model with Spillovers and Mergers

Author

Listed:
  • Nobuo Akai

    (Professor, Osaka School of International Public Policy, Osaka University)

  • Tsuyoshi Goto

    (PhD.Student, Graduate School of Economics, Osaka University)

Abstract

Mergers of local governments, commonly referred to as municipal mergers, have been implemented widely to internalize spillover effects. Many empirical studies point out that municipalities strategically increase their debt issuance before mergers, creating the `fiscal common pool problem', because of pooled budgets after mergers. However,this phenomenon has not yet been analyzed theoretically. Therefore, this paper examines the mechanism of increased debt issuance before municipal mergers. Our results show that three different effects influence intertemporal budget allocations of municipalities at the time of a merger and the existence of externalities may reduce the severity of the fiscal common pool problem.

Suggested Citation

  • 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.
    • Handle: RePEc:osp:wpaper:18e011
    as

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    References listed on IDEAS

    as
    1. Saarimaa, Tuukka & Tukiainen, Janne, 2015. "Common pool problems in voluntary municipal mergers," European Journal of Political Economy, Elsevier, vol. 38(C), pages 140-152.
    2. Feld, Lars P. & Fritz, Benedikt, 2015. "The political economy of municipal amalgamation: Evidence of common pool effects and local public debt," Freiburg Discussion Papers on Constitutional Economics 15/10, Walter Eucken Institut e.V..
    3. Sune Welling Hansen, 2014. "Common pool size and project size: an empirical test on expenditures using Danish municipal mergers," Public Choice, Springer, vol. 159(1), pages 3-21, April.
    4. Henrik Jordahl & Che-Yuan Liang, 2010. "Merged municipalities, higher debt: on free-riding and the common pool problem in politics," Public Choice, Springer, vol. 143(1), pages 157-172, April.
    5. 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.
    6. Tyrefors Hinnerich, Björn, 2009. "Do merging local governments free ride on their counterparts when facing boundary reform?," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 721-728, June.
    7. Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, vol. 38(3-4), pages 765-773, April.
    8. Junichi Nagami & Hikaru Ogawa, 2011. "Partial coordination in local debt policies," Applied Economics Letters, Taylor & Francis Journals, vol. 18(18), pages 1785-1787, December.
    9. Krogstrup, Signe & Wyplosz, Charles, 2010. "A common pool theory of supranational deficit ceilings," European Economic Review, Elsevier, vol. 54(2), pages 269-278, February.
    10. Velasco, Andres, 2000. "Debts and deficits with fragmented fiscal policymaking," Journal of Public Economics, Elsevier, vol. 76(1), pages 105-125, April.
    11. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-664, August.
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    Cited by:

    1. 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.
    2. 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.

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    More about this item

    Keywords

    Strategic intertemporal budget allocation; Merger; Spillover;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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