Crucial Decisions By Small Towns and Villages: Why Did Some Municipalities Choose to Merge But Others Did Not During the Nationwide Wave of Municipal Mergers in Japan?

ABSTRACT

This article focuses on the nationwide wave of municipal consolidations in Japan that took place from 2003 to 2006 and examines why some municipalities merged but others did not. The central government did not legally force consolidations but instead provided municipalities with fiscal incentives. I argue that small municipalities were reluctant to merge because they would lose generous transfers from the central government as well as decision-making powers once they unified with their larger neighbors. Fiscal incentives by the central government significantly raised the cost of remaining intact and induced a large number of fiscally weak municipalities to merge.

KEYWORDS:

• Decentralization
• japan
• local government
• municipal mergers

Acknowledgements

An earlier version of this article was presented at the 2011 annual meeting of the American Political Science Association and a seminar at International University of Japan. I thank comments and suggestions from the participants. I am also thankful for comments and suggestions from Thad Dunning, Justin Fox, Brian Fried, Alan Gerber, Yoshikuni Ono, Frances McCall Rosenbluth, Jun Saito, and Seiki Tanaka. I am solely responsible for any remaining errors. I thank Jun Saito for providing election data and municipal budget data.

Funding

I gratefully acknowledge financial support from the Council on East Asian Studies at Yale University.

Notes

¹ See Saito and Yamada (2011) for reviews of explanations about why the central government strongly promoted municipal mergers.

² One reason would be that it is difficult for those localities with weak tax bases and low tax revenues to provide sufficient levels of public services on their own. As one of the potential solutions to such situations, Bunch and Strauss (1992) show that financially distressed small local governments may be able to reduce deficits, mitigate burdens on taxpayers, and improve the level of public services by consolidating into a larger one.

³ Decisions on a merger had to be approved in each of the municipal assemblies involved in the merger. Thus, the amendment also incorporated a measure aimed to mitigate opposition against mergers from municipal assembly members, many of whom would lose their jobs immediately after the consolidations. For example, a merged municipality was allowed to have all the assembly members of the pre-merger municipalities serve two additional years (without election) following the merger.

⁴ From 1998 to 2001, the government weakened the adjustment measure for municipalities whose populations were smaller than 4000, such that the uniform adjustment rate was imposed on these municipalities. The second revision, which took off in 2002, changed the way in which the adjustment rate was calculated for municipalities whose populations were equal to or smaller than 50,000.

⁵ I assume the utilities of the city dwellers and the villagers are linear in the conditional grants, and the central government provides the conditional grants directly to the merged municipality. I further assume that each person in the municipality receives the same amount of the grant regardless of the location. The grants are not politically contested and thus cannot be redistributed after the merged municipality receives them.

⁶ The variable is equal to one even if the merger involved municipalities other than the pair. (E.g. If the pair and four other municipalities merged to form one municipality, the variable is still equal to one.)

⁷ The ordinary balance ratio is:

⁸ Author’s interview with officials of Wakayama Prefecture, March 2011.

⁹ The effect is substantially important as well. For example, for the sample with observations below the median, the predicted probability of merger decreases by 22.5% points when the per capita revenue increases from the first quartile to the third quartile. (All the other variables are set to their median values.)

¹⁰ Horiuchi and Saito (2003) argue that due to the reapportionment and the introduction of a mixed-member majoritarian electoral rule in 1994, the electoral importance of rural voters in Japan indeed declined and that of urban voters increased since the mid-1990s.

Additional information

Funding

I gratefully acknowledge financial support from the Council on East Asian Studies at Yale University.