RIEB Seminar (Jointly supported by: KUMA Seminar, Rokko Forum and Rokkodai Public Economics Seminar)
Evaluation of the Fiscal Effect on Municipal Mergers: Quasi-experimental Evidence from Japanese Municipal Data
The purpose of this paper is to evaluate a fiscal common pool problem in Japanese municipal mergers. Specifically, we investigated whether the merged municipalities rapidly their increase expenditures and debt 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, 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 merger. Our results show that the subordinate merger partner suffers from adverse fiscal conditions and creates the fiscal common pool problem in public projects just before mergers.