Do municipal mergers reduce public expenditure? Evidence from the MTE approach

Tsuyoshi Goto

Economics Bulletin, 2023, vol. 43, issue 3, 1366 - 1376

Abstract: This study investigates whether local government mergers reduce public expenditure by examining the marginal treatment effect (MTE) using data from Japan during FY2006-2018. Existing papers in the literature have paid little attention to self-selection bias or heterogeneity in treatment effects and preferences for mergers. Corresponding to these issues, we use the instrumental variables used in Miyazaki(2018) [Applied Economics, 50(10), pp. 1108-1121] and estimate the MTE of the mergers. From the estimated MTEs, we construct several estimands corresponding to the heterogeneity and show that municipal mergers increased public spending on average. Moreover, we confirm that the local average treatment effect (LATE) was quite large from FY2006 to FY2015, although it decreased suddenly in FY2016 around which some incentives that promoted the mergers ended. This implies that the incentives offered by the national government negated the expenditure reductions resulting from municipal mergers.

Keywords: Marginal treatment effect; Municipal merger; Public expenditure (search for similar items in EconPapers)
JEL-codes: H7 R5 (search for similar items in EconPapers)
Date: 2023-09-30
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Working Paper: Do municipal mergers reduce public expenditure? Evidence from the MTE approach (2022)
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