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Creative Accounting and Municipal Mergers -A Theoretical and Empirical Approach-

Author

Listed:
  • Tsuyoshi Goto

    (Research Fellow of Japan Society for the Promotion of Science ; PhD.Student, Graduate School of Economics, Osaka University)

  • Genki Yamamoto

    (Master's Student, Graduate School of Economics, Osaka University)

Abstract

This study investigates what causes governments to use creative accounting. It is difficult to grasp the mechanism of creative accounting and show its existence. This is because, although creative accounting is seemingly closely tied with increases in debt, whether creative accounting is a cause or result of the debt increase is ambiguous and finding the occurrence of creative accounting is not easy. However,by focusing on municipal mergers in Japan in the 2000s, we clarify that the incentive to increase debt causes the use of creative accounting and show the existence of creative accounting, theoretically and empirically. Our theoretical model shows that a government with a stronger incentive to increase debt rationally employs creative accounting more fiercely and that an improvement in fiscal transparency reduces both the use of creative accounting and the deficit amount. Corresponding to this finding,by using a difference-in-difference analysis and data on Japanese municipal mergers, we show that municipalities with a stronger incentive to increase debt tend to employ creative accounting.

Suggested Citation

  • 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.
    • Handle: RePEc:osp:wpaper:18e012
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    References listed on IDEAS

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    Cited by:

    1. 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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    More about this item

    Keywords

    Creative accounting; Municipal merger; Fiscal common pool problem; Regulation for borrowing;
    All these keywords.

    JEL classification:

    • 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
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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