Municipal consolidation and local government behavior: evidence from Japanese voting data on merger referenda

The empirical literature investigating the role of key features of local governments regarding decisions on consolidation tends to use a dummy dependent variable that takes 1 if both adjacent local governments decide to merge and 0 if one of them does not approve consolidation. Under this estimation method, however, it is difficult to know which governments refused to consolidate, as consolidation was not realized. The current study empirically tests the effects of economies of scale, population size, heterogeneity of preferences, and financial factors on municipal preferences for consolidation. It uses voting data from Japanese local referenda to identify preferences of specific individual municipalities, thus allowing a richer examination of local government behavior. The results obtained herein are as follows. Municipalities that could enjoy large economies of scale from consolidation prefer consolidation, while large and small municipalities are likely to merge. Moreover, municipalities receiving large unconditional grants from the central government are unlikely to merge.