Empirics of Local Public Borrowing after Amalgamation in Japan

Abstract

  The Municipal Amalgamation Law in 1999 allowed amalgamated municipalities the 95％ of the amalgamation cost (e.g., construction) by issuing special purpose municipal bonds for 10 years, and the central government covered 70％ of the principal and interest repayments. Accordingly, they accumulated the special purpose debt of 4.6 trillion yen at the end of fiscal year (FY) 2011. Especially, 90％ of them issued special purpose debt annually from the year after amalgamation. This study examines the determinants of borrowing of Japanese municipalities after amalgamation. We employed a difference-in-difference regression, the results of which clearly show that the municipalities after amalgamation had accumulated special purpose municipal bonds and reduced usual municipal bonds.