Evaluation of the fiscal effect on municipal mergers: Quasi-experimental evidence from Japanese municipal data

Haruaki Hirota and Hideo Yunoue

Regional Science and Urban Economics, 2017, vol. 66, issue C, 132-149

Abstract: The purpose of this paper is to evaluate a fiscal common pool problem in Japanese municipal mergers. Specifically, we investigate whether the merged municipalities rapidly increase their expenditures and bonds just before mergers. Because the likelihood of Japanese municipal mergers depends on a municipality's characteristics such as population size, area, and fiscal conditions, municipal mergers are a non-voluntary and non-random phenomenon in Japan. Therefore, we identify causal effects by applying propensity score matching within a differences-in-differences framework to address the problems of endogeneity bias and sample selection bias. In particular, we focus on the subordinate merger partner in absorption-type mergers. Our results show that the subordinate merger partner suffers from adverse fiscal conditions and creates a fiscal common pool problem in public projects just before mergers.

Keywords: Fiscal common pool problem; Municipal mergers; Propensity score matching with differences-in-differences; Average treatment effect on treated; Subordinate merger partner (search for similar items in EconPapers)
JEL-codes: H72 H73 H74 H77 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Working Paper: Evaluation of the fiscal effect on municipal mergers: Quasi-experimental evidence from Japanese municipal data (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:66:y:2017:i:c:p:132-149

DOI: 10.1016/j.regsciurbeco.2017.05.010

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