Municipal relationship modifications by the Great Heisei Consolidation in Japan

In Japan, the Great Heisei Consolidation has facilitated municipal mergers for economies of scale and drastically reduced the number of municipalities since 2000.This phase of merger promotion ended in 2010. The central government’s strongest focus was on encouraging mergers in areas where many municipalities each had a population of less than 10,000. An analysis of the “metropolitan power diffusion index” (MPDI) and “move resources” shows that, although half of the areas achieved good modifications, mergers do not always improve financial efficiency. However, the more striking result is that municipalities in prefectures that resisted the central government’s consolidation incentives, especially Hokkaido where there are many small municipalities, continued to receive the benefit of local allocation tax revenue redistribution from the central government due to their relatively disadvantaged fiscal status. By contrast, the benefits of well-modified municipalities that followed the recommendations of central government policy and achieved good outcomes were reduced and financial exemption was cut. Thus, the central government’s use of accelerated and restrictive approaches to incentivise consolidation was limited by its ongoing willingness to bail out needy municipalities that did not accept with national policy.