In this paper, we examine what kind of mechanism functions for the decision-making on public capital formation. There are many policy objects in public capital formation. Therefore, we must control these policy objects, in order to detect political factors in the decision-making. Namely, Two-way Effects Model is useful because the unobservable individual and time effects are taken into consideration.
We offer three hypotheses that may explain the decision-making on public capital formation. Our first hypothesis is that the flexible and pragmatic decision-making by the LDP has a great influence on it, for the purpose of the maintenance of the LDP Government. Our sec-ond hypothesis is that the political decision-making by the governors foreseeing an election year has a great influence on it. Our final hy-pothesis is that the cooperation between the bureaucrats and the former bureaucracy's governor has a great influence on it.
As a result of the hypothesis testing, under the LDP Government, we confirm the evidence in support of the first hypothesis. However, under the coalition government, we confirm the evidence in support of the third hypothesis.
By the way, we know that the electorate support the former bureaucracy's governor, because the governors have the high average election number of times. Considering this fact, we should not consider that the bureaucrats and the former bureaucracy's governor promote public capital formation dogmatically. We should understand that after the collapse of the LDP Government, the former bureaucracy's governors show their ability as a politician.
In other words, the former bureaucracy's governors have a great influence on the decision-making on public capital formation under the coalition government.
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