Abstract
The number of municipalities in Japan has decreased from 3,232 in 1999 to 1,820 in 2006 because of municipal mergers, called Heisei-no-Daigappei. The previous works on municipal mergers reported that the scale effect of expenditures (a U shaped per capita expenditure curve) are observed in Japan, and concluded that it might be achieved the reduction of expenditure by municipal mergers. However there are few researches to analyze the expenditure changes in Heisei-no-Daigappei. This paper estimates the scale effect of expenditures and the effects of municipal mergers in Japan’s local public expenditure. In order to consider the expenditure of municipal mergers, our new approach is to apply unique index called financial index classified by similar types.
First, the expenditure structure is found to be an “inverse” U shaped in our estimation using fixed effect panel analysis on Japanese municipalities. The U shape which has been observed in previous works seems to be the fixed effect. The U shape on previous works might be caused by the miss specification or omitted variable problem. Second, we mainly found out that municipalities achieved reductions in their total expenditures with mergers, and the pace of reduction would be diminished after the elapse of a certain period of time. According to our results, the expenditure of merged municipality declined about 7.8% in the first year, and the reduction rate became about 11% in a few year after the merged year.
JEL Classifications: H77, H11, H72
