Municipal Mergers and Cost Reduction Effects

Abstract

This paper investigates the relationship between municipal mergers and cost reduction over municipalities given the elapse of 10 years after the “Great Heisei Mergers” in Japan. First, this paper surveys research on local government mergers in Japan and other countries. Second, it explores the effects of municipal mergers on total expenditure, payroll costs, and spending on legislature per capita, with the focus on elapsed years after the merger and comparison with non-merged municipalities. It is found that previous studies have not obtained consistent results on the effects of mergers on costs, either in Japan or other countries. Examination of the effects of mergers on specific fiscal items demonstrates that spending on legislature declined dramatically in the few years before and after a merger, whereas total expenditures and payroll costs hiked in the year of a merger and dropped one year after, but increased since then onward.