This paper uses a case study to clarify the financial effects of school consolidation policies conducted by municipalities. The case examined in this article is the school consolidation policy implemented by Municipality A of Prefecture X in the Kanto region at the end of FY 2007. 'School consolidation' is generally defined as 'the practice of combining two or more schools'. However, this definition seems to exclude the issue of public policy. In fact, when a local government consolidates schools, it is accompanied by other policies. Therefore, in this study, the term 'school consolidation policy' is used to describe a concept including the series of policies associated with school consolidation. In an aging society with fewer children, if we aim to maintain the present scale of schools, school consolidation is indispensable. In particular, national and local governments are mired in financial problems, and school consolidation is particularly attractive to them if it can help them cut expenditures. The Fiscal System Council (FSC) proposed the implementation of school consolidation policy for economical or educational reasons, and some municipalities continue to debate the issue from a similar perspective. However, little is known about actual financial effects of implementing school consolidation policies. For example, the FSC proposals argue that running costs could be reduced by about 30% through school consolidation. On the other hand, Honda (2011) points out that school consolidation does not always result in reduced educational budgets. It is important, therefore, to examine in detail the actual financial effects of school consolidation policies. This paper aims to do so by analyzing public finance statistics for the school consolidation policy implemented in Municipality A. The financial effects of school consolidation policy are divided into four categories: 'expenditure decrease effects', 'revenue increase effects', 'expenditure increase effects' and 'revenue decrease effects'. The first two categories have positive values, and the second two negative values. Their overall impact is referred to as 'financial effects'. Four findings were made. First, school consolidation resulted in reduced operating expenses. In other words, school consolidation achieved economies of scale. Second, school consolidation policy required huge financial resources at the policy making and implementation stages. However, national and local governments provided part of the necessary fiscal resources for policy implementation. Third, after these stages, since FY 2008, the municipal government needed the expense that was necessary for the observance of a contract of the promise. Municipal government must disburse, by their revenue sources, the cost required by implementation of agreed policies. This becomes new operating expenses (unavoidable cost). Fourth, the financial effect of the school consolidation policy took a negative figure. This suggests the possibility that municipalities with poor financial resources can't carry out a school consolidation policy, or if they do, it may not be primarily for educational purposes. Then, what is the financial significance of the school consolidation policy? Inferring from these results, it facilitates the smooth reallocation of resources to the current educational needs (educational expenses liquidation-reallocation effect hypothesis). However, it must be taken into consideration that these are limited effects. Certainly 'expenditure decrease effects' reduce the cost of per school and per pupil. However, if the birthrate continues to decrease, those relative costs would rise again to their previous levels. In addition, each municipality decides the reallocation of financial resources for educational budget politically. To get the necessary budget for
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