Examining the relationship between municipal consolidation and cost reduction: an instrumental variable approach

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This study explores the cost-reduction effects of local government consolidation, using data from Japanese municipalities. We use municipal panel data from Japan for the years 2000, 2005 and 2010, a data set including numerous consolidation cases. Reverse causality between consolidation decisions and size of municipal expenditure is a concern in the voluntary consolidation of local governments. An instrumental variable (IV) methodology is employed to deal with possible endogeneity associated with consolidation decisions. The main finding is that municipal current expenditure per capita increases immediately after consolidation, but then gradually declines. Because consolidation seems to increase per capita expenditure in the absence of the effect of this long-term declining trend, incorporating this trend into estimation is crucial in cost-efficiency analysis of consolidation. It is also shown that conventional panel data regressions yield biased consolidation effects, suggesting the superiority of the IV approach.

Original languageEnglish
Pages (from-to)1108-1121
Number of pages14
JournalApplied Economics
Volume50
Issue number10
DOIs
Publication statusPublished - Feb 25 2018

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Instrumental variables
Consolidation
Expenditure
Local government
Panel data
Endogeneity
Efficiency analysis
Japan
Trend estimation
Causality
Municipalities
Methodology

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Examining the relationship between municipal consolidation and cost reduction : an instrumental variable approach. / Miyazaki, Takeshi.

In: Applied Economics, Vol. 50, No. 10, 25.02.2018, p. 1108-1121.

Research output: Contribution to journalArticle

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