Abstract
The analysis described in this chapter confirms that pre-merger municipalities in Japan engage in free-rider behavior. Municipalities have an incentive to issue public debt before amalgamation because they can benefit from local public projects ahead of a merger and can subrogate the debt burden to the newly created post-merger municipality. Previous studies of this behavior applied the difference-in-differences method to samples of pre-merger and never-merged municipalities. These studies considered this method’s assumption of parallel local public debt accumulation trends for the pre-merger and never-merged municipalities, but doubt regarding the assumption that the merged municipalities are chosen at random remains, particularly in the voluntary amalgamation case. Thus, in this study, I use Heckman’s sample selection estimate to deal with the sample selection problem. Moreover, I choose an additional index for the free-rider incentives of pre-merger municipalities. Finally, I classify pre-merger municipalities as either cities or towns and villages. The results confirm that only pre-merger towns and villages with incentives to free ride engage in free riding.
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Notes
- 1.
The LAT is an intergovernmental subsidy intended to adjust the uneven distribution of national government resources among local governments.
- 2.
In 1999, the old law was amended.
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Acknowledgements
This study is supported by a Grant-in-Aid for Scientific Research (KAKENHI, grant No. 16K17120) from the Japan Society for the Promotion of Science.
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Nakazawa, K. (2019). Free-Rider Behavior and Amalgamation Patterns. In: Kunizaki, M., Nakamura, K., Sugahara, K., Yanagihara, M. (eds) Advances in Local Public Economics . New Frontiers in Regional Science: Asian Perspectives, vol 37. Springer, Singapore. https://doi.org/10.1007/978-981-13-3107-7_8
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DOI: https://doi.org/10.1007/978-981-13-3107-7_8
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