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ABSTRACT
In Japan, the so-called "Great Heisei Amalgamations" were executed over the period from 1999 to 2010. During this time the number of municipalities decreased from 3,232 to 1,727. Some of the extant literature suggests that the reduction of local allocation tax (LAT) grants to smaller municipalities had provided a strong incentive for the voluntary amalgamations. In this study, through empirical analysis of a seven-year panel of rich financial data, the factors salient to these voluntary municipal amalgamations are considered from the perspective of participating local governments. The results demonstrate that fiscal unsustainability, which was largely caused by central government policies, was the main motivation for municipalities with low financial capabilities to amalgamate.
Keywords: municipal amalgamations, local allocation tax grants, financial inflexibility, fiscal sustainability.
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INTRODUCTION
In Japan, the so-called "Great Heisei3 Amalgamations" were executed over the period from 1999 to 2010. During this time the number of municipalities decreased from 3,232 to 1,727. It has been suggested that the reduction of local allocation tax (LAT) grants4 to smaller municipalities - which had a higher percentage of LAT grants and a population less than 3000 - had provided a strong incentive for the voluntary amalgamations. There are some previous studies on the factors of municipal amalgamation in Japan. However, there is little agreement in the extant literature on the effect that reductions in LAT grants might have had. For example, Aoki (2006) and Machida (2006) using simple statistics concluded that both the alterations of adjustment coefficients for LAT grants in 1998 and 2002, and the reduction of the amount of LAT grants in the 2000s caused amalgamations of smaller municipalities. On the other hand, using logit analysis, Hirota (2007) showed that municipalities with high percentage of LAT grants in their revenue and high ordinary balance ratio tended to be amalgamated. Miyazaki (2010) demonstrated that the alterations of adjustment coefficients for LAT grants in 2002 increased the probability of amalgamations, using a linear probability model with panel data. Moreover, Nakazawa and Miyashita (2018) employed logit analysis to argue that a high percentage of LAT grants caused amalgamations of towns and villages. Thus, the extant work, whilst largely recognizing the importance of LAT grants, does differ in specifying the precise mechanism through...
