The Impact of Municipal Mergers on Local Public Spending: Evidence from Remote-Sensing Data

Abstract

© The Author(s) 2020. How are resources distributed when administrative units merge? We take advantage of recent, large-scale municipal mergers in Japan to systematically study the impact of municipal mergers within merged municipalities and, in particular, what politicians do when their districts and constituencies suddenly change. 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 because they lost political leverage through the merger. Our empirical analyses 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 merged municipalities. Overall, our results show that politicians tend to reduce benefits allocated to areas where there are a small number of voters, while increasing the allocation to more populous areas. The micro-foundation of our argument is also corroborated by survey data. The finding suggests that, all things being equal, the quantity rather than quality of electorates matters for politicians immediately after political units change.