UNE Business School Seminar

'Fiscal Sustainabilty and Municipal Amalgamations in Japan' by Associate Professor Masato Miyazaki

Date: Fri 31st May 2019 11:00am-12:30pm

Location: LT2 W40 EBL Building
Contact: Emilio Morales  lmorales@une.edu.au

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.

In this seminar, I will discuss about a study I conducted on the empirical analysis of the relationship between municipal amalgamations and fiscal sustainability. The following findings were obtained.

First, the ordinary balance ratio – which indicates the financial inflexibility of local governments on amalgamations – was found to be statistically significant and positive.

Second, the percentage of local allocation tax (LAT) grants as a proportion of total municipal revenue was statistically significantly and positive.

Third, the ratio of debt obligations of municipalities to general revenue (local tax and LAT grants) was also found to be statistically significant and positive. It is also apparent from my analysis that, smaller municipalities that had a higher percentage of LAT grants and a population less than 3000 were most likely to participate in the voluntary amalgamations.

The analysis demonstrates that fiscal unsustainability, which was largely caused by central government policies, was the main motivation for municipalities with low financial capabilities to amalgamate. Indeed, the central government policy of encouraging municipalities to issue local bonds for unsubsidized public works in 1990s, as well as reduced LAT grants to facilitate the decentralization in 2000s, appear to have caused management of some municipalities to develop weak financial capability and hence become financially unsustainable.

Masato Miyazaki is Associate Professor in the Faculty of Economics at Saitama University. He was born in 1978. He received a Ph.D. in economics from Keio University in 2017. His research interests focus on local public finance and expenditure. He is the recipient of Sato Prize for best article in local public finance in 2008. Keio University Press has recently published his book, The Political Economy of Behaviours of Local Governments (in Japanese). Recent publications have appeared in American Review of Political Economy. Moreover, he contracted to write a new book with the title Deterioration of Region (to be delivered in 2019). He also serves as a member of the Study Group on Waterworks Issues, Ministry of Internal Affairs and Communications.