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Amalgamation, free-ride behavior, and regulation

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  • Katsuyoshi Nakazawa

    () (University of Toyo)

Abstract

TAmalgamation incentivizes municipalities to increase public debt because it allows them to subrogate their repayment and interest burden on the entire municipality after amalgamation. Especially, the smaller municipality tends to accumulate public debt in order to free-ride. Previous literature has shown this kind of opportunistic behavior in countries where municipalities can issue bonds freely in the market. However, public borrowing by municipalities is strongly controlled in Japan. This study examines the relationship between regulation of local government borrowing and the free-ridebehavior of Japanese municipalities on amalgamation. Difference-in-difference regression confirms the free-ride effect, which is however wholly counterbalanced by regulation.

Suggested Citation

  • Katsuyoshi Nakazawa, 2013. "Amalgamation, free-ride behavior, and regulation," MAGKS Papers on Economics 201339, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201339
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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/39-2013_nakazawa.pdf
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    References listed on IDEAS

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    1. Gilligan, Thomas W. & Matsusaka, John G., 2001. "Fiscal Policy, Legislature Size, and Political Parties: Evidence from State and Local Governments in the First Half of the 20th Century," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 57-82, March.
    2. Reingewertz, Yaniv, 2012. "Do municipal amalgamations work? Evidence from municipalities in Israel," Journal of Urban Economics, Elsevier, vol. 72(2), pages 240-251.
    3. 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.
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    8. 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.
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    12. Bradbury, John Charles & Crain, W. Mark, 2001. "Legislative organization and government spending: cross-country evidence," Journal of Public Economics, Elsevier, vol. 82(3), pages 309-325, December.
    13. Gaines H. Liner, 1992. "Annexation Impact On Municipal Efficiency," The Review of Regional Studies, Southern Regional Science Association, vol. 22(1), pages 75-87, Summer.
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    Cited by:

    1. Nakazawa, Kasuyoshi, 2016. "Identifying Discretion of Municipalities to Undertake Eligibility Assessments for Japan’s Long-Term Care Insurance Program," MPRA Paper 75565, University Library of Munich, Germany.
    2. Köppl Turyna, Monika & Pitlik, Hans, 2016. "Do equalization payments affect subnational borrowing? Evidence from regression discontinuity," MPRA Paper 73749, University Library of Munich, Germany.
    3. repec:eee:regeco:v:66:y:2017:i:c:p:132-149 is not listed on IDEAS
    4. Katsuyoshi Nakazawa, 2013. "Municipality amalgamation and free-ride behavior: Eligibility assessments for long-term care insurance in Japan," MAGKS Papers on Economics 201340, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Blesse, Sebastian & Baskaran, Thushyanthan, 2016. "Do municipal mergers reduce costs? Evidence from a German federal state," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 54-74.
    6. 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.
    7. 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.
    8. Nakazawa, Katsuyoshi, 2016. "Free-rider behavior under voluntary amalgamation: The case of setting the long-term care insurance premium in Japan," MPRA Paper 75147, University Library of Munich, Germany.
    9. 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.
    10. Sebastian Blesse & Felix Rösel, 2017. "Gebietsreformen: Hoffnungen, Risiken und Alternativen," ifo Working Paper Series 234, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • 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
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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