The Vertical Effect to Municipal Personnel Expenditure Influenced by the Factor of Prefectural Governments

Abstract

　This paper investigates the vertical effect on municipal personnel expenditure influenced by the factor of prefectural governments. We focus on the personnel expenditure after the great east Japan earthquake in 2011. After that, Central government in Japan strongly required local governments to follow official pay cut. This shock gave rise to varied responses from local governments. Our approaches are HLM (Hierarchical Linear Modeling) with simultaneous analysis of several group used in social psychology and Panel Data Analysis in economics. We found that municipal personnel expenditure is influenced by the factor of partisanship of governors or pay level in prefectural governments. If the governor of the Liberal Democratic Party cuts official pay, the mayors of the same partisanship will follow. In addition, the change of government brings fiscal discipline to the prefectures which the governors of the same partisanships lead. Our examination indeed shows that there is such vertical fiscal interdependence that hasn't been examined by previous studies in fiscal economics.