Strategic Intertemporal Budget Allocation of Local Governments in the Model with Spillovers and Mergers

Nobuo Akai and Tsuyoshi Goto
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Nobuo Akai: Professor, Osaka School of International Public Policy, Osaka University

No 18E011, OSIPP Discussion Paper from Osaka School of International Public Policy, Osaka University

Abstract: Mergers of local governments, commonly referred to as municipal mergers, have been implemented widely to internalize spillover effects. Many empirical studies point out that municipalities strategically increase their debt issuance before mergers, creating the `fiscal common pool problem', because of pooled budgets after mergers. However,this phenomenon has not yet been analyzed theoretically. Therefore, this paper examines the mechanism of increased debt issuance before municipal mergers. Our results show that three different effects influence intertemporal budget allocations of municipalities at the time of a merger and the existence of externalities may reduce the severity of the fiscal common pool problem.

Keywords: Strategic intertemporal budget allocation; Merger; Spillover (search for similar items in EconPapers)
JEL-codes: H72 H74 H81 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2018-09
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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