IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/42799.html
   My bibliography  Save this paper

Local government expenditure and council size: Quasi-experimental evidence from Japan

Author

Listed:
  • Hirota, Haruaki
  • Yunoue, Hideo

Abstract

In order to evaluate a fiscal common-pool problem, this paper focuses on the relationship between local government council size and its expenditure. Generally, local councilors internalize the benefit of public projects targeted at their political jurisdictions, but underestimate and prefer to externalize the cost of public projects due to the national subsidy system. When council sizes become larger, their expenditure might be larger because of the selfish behavior of local council members. This paper estimates the positive effect of local council size on local government expenditure using a dataset of 13,989 municipalities in Japan over a period of 6 years. In Japan, local council size is a deterministic and discontinuous function of municipal population size under legal rules. We pay attention to this exogenous discontinuity and apply a regression discontinuity design to consider an endogeneity bias. The results show that the larger the size of the local council the larger the size of expenditure they undertake. In particular, we find that growing small municipalities tend to increase their expenditures, so that for example, 1% increases in local council size lead to about 1.2% increases of expenditures by small municipalities. Our results show that the fiscal common-pool problem is produced in small municipalities.

Suggested Citation

  • Hirota, Haruaki & Yunoue, Hideo, 2012. "Local government expenditure and council size: Quasi-experimental evidence from Japan," MPRA Paper 42799, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42799
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/42799/1/MPRA_paper_42799.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yianos Kontopoulos & Roberto Perotti, 1999. "Government Fragmentation and Fiscal Policy Outcomes: Evidence from OECD Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 81-102, National Bureau of Economic Research, Inc.
    2. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    3. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
    4. Persson, Torsten & Tabellini, Guido, 1999. "The size and scope of government:: Comparative politics with rational politicians," European Economic Review, Elsevier, vol. 43(4-6), pages 699-735, April.
    5. Peter Egger & Marko Koethenbuerger, 2010. "Government Spending and Legislative Organization: Quasi-experimental Evidence from Germany," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 200-212, October.
    6. Reza Baqir, 2002. "Districting and Government Overspending," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1318-1354, December.
    7. Lee, Myoung-jae, 2005. "Micro-Econometrics for Policy, Program and Treatment Effects," OUP Catalogue, Oxford University Press, number 9780199267699.
    8. Bradbury, John Charles & Stephenson, E Frank, 2003. "Local Government Structure and Public Expenditures," Public Choice, Springer, vol. 115(1-2), pages 185-198, April.
    9. Pettersson-Lidbom, Per, 2012. "Does the size of the legislature affect the size of government? Evidence from two natural experiments," Journal of Public Economics, Elsevier, vol. 96(3), pages 269-278.
    10. Gilligan, Thomas W & Matsusaka, John G, 1995. "Deviations from Constituent Interests: The Role of Legislative Structure and Political Parties in the States," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 383-401, July.
    11. Schaltegger, Christoph A. & Feld, Lars P., 2009. "Do large cabinets favor large governments? Evidence on the fiscal commons problem for Swiss Cantons," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 35-47, February.
    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. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Britto, Diogo G.C. & Fiorin, Stefano, 2020. "Corruption and legislature size: Evidence from Brazil," European Journal of Political Economy, Elsevier, vol. 65(C).
    2. Hirota, Haruaki & Yunoue, Hideo, 2013. "Does local council size affect land development expenditure? Quasi-experimental evidence from Japanese municipal data," MPRA Paper 43723, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel Höhmann, 2017. "The effect of legislature size on public spending: evidence from a regression discontinuity design," Public Choice, Springer, vol. 173(3), pages 345-367, December.
    2. Garmann, Sebastian, 2015. "Elected or appointed? How the nomination scheme of the city manager influences the effects of government fragmentation," Journal of Urban Economics, Elsevier, vol. 86(C), pages 26-42.
    3. Dongwon Lee, 2015. "Supermajority rule and the law of 1/n," Public Choice, Springer, vol. 164(3), pages 251-274, September.
    4. Dongwon Lee & Sangwon Park, 2018. "Court-ordered redistricting and the law of 1/n," Public Choice, Springer, vol. 176(3), pages 507-528, September.
    5. Halse, Askill H., 2016. "More for everyone: The effect of local interests on spending on infrastructure," European Journal of Political Economy, Elsevier, vol. 43(C), pages 41-56.
    6. William B. Hankins, 2015. "Government Spending, Shocks, and the Role of Legislature Size: Evidence from the American States," Social Science Quarterly, Southwestern Social Science Association, vol. 96(4), pages 1059-1070, December.
    7. Germà Bel & Ringa Raudla & Miguel Rodrigues & António F. Tavares, 2018. "These rules are made for spending: testing and extending the law of 1/n," Public Choice, Springer, vol. 174(1), pages 41-60, January.
    8. Alptekin, Huzeyfe & Freire, Danilo & Mignozzetti, Umberto Guarnier & Roman, Catarina, 2020. "The Effect of Legislature Size on Public Spending: A Meta-Analysis," SocArXiv xf7wp, Center for Open Science.
    9. Joaquín Artés & Ignacio Jurado, 2018. "Government fragmentation and fiscal deficits: a regression discontinuity approach," Public Choice, Springer, vol. 175(3), pages 367-391, June.
    10. Peter Egger & Marko Koethenbuerger, 2010. "Government Spending and Legislative Organization: Quasi-experimental Evidence from Germany," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 200-212, October.
    11. 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.
    12. 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.
    13. 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).
    14. Frank, Marco & Stadelmann, David, 2021. "More federal legislators lead to more resources for their constituencies: Evidence from exogenous differences in seat allocations," Journal of Comparative Economics, Elsevier, vol. 49(1), pages 230-243.
    15. Katsuyoshi Nakazawa, 2018. "Free‐rider behaviour under voluntary amalgamation: The case of setting the long‐term care insurance premium in Japan," Papers in Regional Science, Wiley Blackwell, vol. 97(4), pages 1409-1423, November.
    16. 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.
    17. Ringa Raudla, 2010. "Governing budgetary commons: what can we learn from Elinor Ostrom?," European Journal of Law and Economics, Springer, vol. 30(3), pages 201-221, December.
    18. Pettersson-Lidbom, Per, 2012. "Does the size of the legislature affect the size of government? Evidence from two natural experiments," Journal of Public Economics, Elsevier, vol. 96(3), pages 269-278.
    19. Lopes da Fonseca, Mariana, 2017. "Political determinants of municipal accounts: Quasi-experimental evidence from Portugal," Center for European, Governance and Economic Development Research Discussion Papers 238, University of Goettingen, Department of Economics.
    20. Paul Pecorino, 2018. "Supermajority rule, the law of 1/n, and government spending: a synthesis," Public Choice, Springer, vol. 175(1), pages 19-36, April.

    More about this item

    Keywords

    fiscal common-pool problem; local council size; government expenditure; regression discontinuity design;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:42799. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.