The Impact of Municipal Mergers on Local Public Spending: Evidence from Remote-Sensing Data
47 Pages Posted: 11 Jun 2016
Date Written: June 8, 2016
What happens to public spending after political units change? Within democratic states, the expansion of political units and corresponding demographic shifts should lead strategic politicians to alter how they allocate public resources in order to maximize their electoral pay-off. We argue that when rural and sparsely populated municipalities merge with more urban and densely populated municipalities, residents of the former are likely to see a reduced share of public spending. We take advantage of municipality mergers in Japan to systematically study what politicians do when their districts - and constituencies - suddenly change. To test the argument, we detect changes in public spending before and after the municipal mergers with remote sensing data, which allows for flexible units of analysis and enables us to proxy for spending within municipalities. Our results show that politicians reduce benefits allocated to areas where there are a small number of people, while increasing the allocation to more populous areas.
JEL Classification: D72, D78, H41, H72, N45
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