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Do municipal mergers reduce public expenditure? Evidence from the MTE approach

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  • Tsuyoshi Goto

    (Chiba University)

Abstract

This study investigates whether local government mergers reduce public expenditure by examining the marginal treatment effect (MTE) using data from Japan during FY2006-2018. Existing papers in the literature have paid little attention to self-selection bias or heterogeneity in treatment effects and preferences for mergers. Corresponding to these issues, we use the instrumental variables used in Miyazaki(2018) [Applied Economics, 50(10), pp. 1108-1121] and estimate the MTE of the mergers. From the estimated MTEs, we construct several estimands corresponding to the heterogeneity and show that municipal mergers increased public spending on average. Moreover, we confirm that the local average treatment effect (LATE) was quite large from FY2006 to FY2015, although it decreased suddenly in FY2016 around which some incentives that promoted the mergers ended. This implies that the incentives offered by the national government negated the expenditure reductions resulting from municipal mergers.

Suggested Citation

  • Tsuyoshi Goto, 2023. "Do municipal mergers reduce public expenditure? Evidence from the MTE approach," Economics Bulletin, AccessEcon, vol. 43(3), pages 1366-1376.
    • Handle: RePEc:ebl:ecbull:eb-23-00185
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    References listed on IDEAS

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    1. James J. Heckman & Vytlacil, Edward J., 2007. "Econometric Evaluation of Social Programs, Part II: Using the Marginal Treatment Effect to Organize Alternative Econometric Estimators to Evaluate Social Programs, and to Forecast their Effects in New Environments," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 71, Elsevier.
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    6. Goto, Tsuyoshi & Yamamoto, Genki, 2023. "Debt issuance incentives and creative accounting: Evidence from municipal mergers in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 68(C).
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    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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