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2019 | Buch

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Advances in Local Public Economics

Theoretical and Empirical Studies

herausgegeben von: Minoru Kunizaki, Prof. Kazuyuki Nakamura, Dr. Kota Sugahara, Dr. Mitsuyoshi Yanagihara

Verlag: Springer Singapore

Buchreihe : New Frontiers in Regional Science: Asian Perspectives

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

This book introduces recent developments in both theoretical and empirical analyses of local public economics. Theories of those economics as well as empirical analyses have been developed dramatically in various directions in recent years.

One direction has been to reflect real economic circumstances, especially in Japan. In the early 2000s, Japan experienced the so-called great merger (or consolidation) of municipalities in the Heisei era (1999 through the present), with the number of municipalities shrinking from 3,232 to 1,821 for increasing administrative and financial efficiency. This phenomenon is mainly due to a drastic change in demography in Japan: the dimishing birthrate and aging population. Following the consolidation, regional coordination has been undertaken to raise overall administrative and financial efficiency. In sum, various types of public policies for tackling the decreasing birthrate and aging population have been carried out. Urban sprawl and the timing of municipal mergers are dealt with from a broad point of view, and public child care services and tax competition are investigated from a policy standpoint.

Another direction has been to incorporate new ideas for forming theoretical frameworks for local public finance, most of which have been based on static situations. In the recent trend toward globalization, local governments have attended not only to the welfare of residents but also to the interests of regional economic development. In addition, decision making by local governments has tended to be affected by political activities. Thus, the endogenous growth setting and lobbying activities for the activities of local governments are discussed in the book. With these new directions for analyses, the author tackles the topics of tax competition, cross-border shopping, local provision of public goods, and soft budgets, thus covering a broad range of aspects of local public finance.

Inhaltsverzeichnis

Frontmatter

Decentralization and Coordination (Japanese Experience)

Frontmatter

Chapter 1. Fiscal Competition, Municipal Consolidation, and Regional Coordination

Abstract

The purpose this chapter is to classify the results of a political economic analysis of fiscal competition and the behavior of municipal consolidation and apply these results to the regional coordination problem. We focus on the common pool problem in fiscal competition, municipal consolidation, and regional coordination, and we present revised empirical propositions. Specifically, we first consider the efficiency of fiscal competition and find that it is prevented by the opportunistic behavior of local governments and interest groups. Next, we summarize the empirical issues of municipal consolidation, consider the improvement of fiscal efficiency, and address the bond management problem from the point of view of political economics. Finally, we apply the political economic analyses of fiscal competition and municipal consolidation to the regional coordination problem.

Minoru Kunizaki

Chapter 2. Coordinated State Capital Tax Reform in an Overlapping Generations Model

Abstract

The analysis described in this chapter examines whether a coordinated state capital tax reform improves steady-state social welfare an overlapping generations (OLG) model with vertical and horizontal tax externalities. We show that an OLG model introduces dynamic efficiency and dynamic vertical externality effects, neither of which appear in static models. In particular, we show that the sign of the dynamic vertical tax externality effect depends on whether each state government ignores the effect of its own tax rate on federal tax revenue.

Tsuyoshi Shinozaki, Hideya Kato, Minoru Kunizaki

Chapter 3. Cross-Border Shopping with Fiscal Externalities

Abstract

In this analysis, we construct a model of asymmetric regions in which the numbers of national borders vary across regions by extending Lucas’s (Reg Sci Urban Econ 34(4):365–385, 2004) one-country model to a two-country model. We consider the following three cases: an integrated world, unitary nations, and decentralization. In the integrated world, a supranational government uniformly implements policy; the outcome in this case is the second-best optimum. In the case of unitary nations, each central government sets a non-coordinated policy. Finally, under decentralization, the central and local governments in both countries set non-coordinated policies. We show that the central governments cannot internalize the fiscal externalities attributed to the existence of a national border in the unitary nations and decentralization cases. Furthermore, in the case of unitary nations, each central government sets a lower tax rate in the region with the national border than in the region without the national border.

Hideya Kato, Mitsuyoshi Yanagihara

Chapter 4. Subsidy Competition Between Regions: An Extension to Cross-shareholding and Employment Concerns

Abstract

In this chapter, we investigate the relationship between firms’ regional location choices and the subsidy policies of regional governments in an imperfectly competitive third-market model. The seminal paper by Janeba (J Int Econ 44(1):135–153, 1998) has found that no subsidies are given to firms, and we check whether this result continues to hold when we extend the model in two ways. First, we incorporate the distributions of firms’ shareholders across regions to examine whether the difference in these distributions affects the zero-subsidy result. We demonstrate that even if firms’ shareholders are located in both regions, the zero-subsidy result continues to hold. Second, we consider the situation in which regional governments have concerns about the regional employment associated with firms’ locations, and we examine whether these governments’ consideration of employment affects the zero-subsidy result. We find that when regional governments have concerns about regional employment, the subsidy competition has no subgame perfect Nash equilibrium.

Kojun Hamada, Yoshitomo Ogawa, Mitsuyoshi Yanagihara

Chapter 5. Neutrality of Intergovernmental Transfers

Abstract

In this chapter, we extend the model of a two-level government constructed by Boadway and Keen (Int Tax Finance 3:137–155, 1996) to include a third level and derive the optimal tax and intergovernmental transfer system. We analyze whether the second-best allocation can be replicated when three types of intergovernmental transfer schemes are available and find that this allocation can always be replicated if the upper level of government is a Stackelberg leader, regardless of the intergovernmental transfer scheme.

Tsuyoshi Shinozaki, Kota Sugahara, Minoru Kunizaki

Chapter 6. Searching for a Soft Budget Constraint: The Case of the Intergovernmental Transfer System in Japan

Abstract

In this chapter, we ascertain whether a soft budget constraint problem is caused by the Local Allocation Tax (LAT) transfer in Japan. We develop a two-period Stackelberg game model that describes the dynamic commitment (DC) problem of the central government and the common pool behavior (CPB) of prefectural governments. We identify two types of CPB: the typical behavior caused by the marginal cost being less than the marginal benefit of the transfer and a type of fiscal externality that changes the transfers to other prefectures. Then, we estimate the reaction function of the central government, which represents a DC problem, and the borrowing equation for capturing the CPB of the prefectural government. We find no definitive evidence for CPB, whereas the bailout driven by the LAT transfer is clear. In addition, the estimate that controls for structural changes demonstrates that prefectural governments inherently discipline themselves regardless of any bailout. Therefore, we cannot identify any SBC problem associated with the LAT transfer. Thus, even if we do observe CPB, its source might be a fiscal externality through the egalitarian structure of the LAT transfer system rather than a bailout by the central government.

Kota Sugahara

Chapter 7. The Optimal Regional Tax Structure in a Monetary Economy

Abstract

In this chapter, we consider a situation in which regional governments use consumption and capital taxes to finance required government expenditures and a central government enacts a helicopter monetary policy independently. Under this policy, the central government equally distributes newly printed money to the regional economies. We consider two scenarios, one in which the government expenditures of the regional economies are totally wasted and one in which they are reimbursed. In both scenarios, as the monetary expansion rate increases, the optimal regional tax mix shifts toward capital taxation. We also show that the optimal level of the consumption tax is higher in the case of reimbursement for a given monetary expansion rate.

Akihiko Kaneko, Daisuke Matsuzaki

Chapter 8. Free-Rider Behavior and Amalgamation Patterns

Abstract

The analysis described in this chapter confirms that pre-merger municipalities in Japan engage in free-rider behavior. Municipalities have an incentive to issue public debt before amalgamation because they can benefit from local public projects ahead of a merger and can subrogate the debt burden to the newly created post-merger municipality. Previous studies of this behavior applied the difference-in-differences method to samples of pre-merger and never-merged municipalities. These studies considered this method’s assumption of parallel local public debt accumulation trends for the pre-merger and never-merged municipalities, but doubt regarding the assumption that the merged municipalities are chosen at random remains, particularly in the voluntary amalgamation case. Thus, in this study, I use Heckman’s sample selection estimate to deal with the sample selection problem. Moreover, I choose an additional index for the free-rider incentives of pre-merger municipalities. Finally, I classify pre-merger municipalities as either cities or towns and villages. The results confirm that only pre-merger towns and villages with incentives to free ride engage in free riding.

Katsuyoshi Nakazawa

Vertical and Horizontal Fiscal Adjustment (From Traditional View to New View)

Frontmatter

Chapter 9. Distribution of Factor Endowments and the Non-cooperative Provision of Public Inputs

Abstract

In this chapter, we consider the neutrality theorem in the presence of public inputs with positive spillover effects. We use a model consisting of two regions, two tradable goods, two primary factors of production, and public inputs to analyze the effects of an interregional transfer that takes the form of the primary factors of production. In this setting, Warr’s neutrality theorem does not fully hold. Although the total provision of public inputs is independent of the distribution of primary factors, the transfer of primary factors may change the welfare level. Furthermore, the possibility of the transfer paradox cannot be excluded. In addition, we show that a Pareto-improving redistribution of the primary factors is possible even if only one region is a non-contributor.

Kazuyuki Nakamura

Chapter 10. An Assessment of the Efficiency of Decentralization in the Execution of Public Works

Abstract

This paper analyzes the efficiency of infrastructure provision in Italy at the execution stage, focusing on the level of government involved. Different nonparametric and parametric frontier estimates are generated to estimate an input distance function for a large sample of Italian public works in the period 2000–2005. Decentralized contracting authorities appear to be systematically less efficient in managing the execution process. These empirical findings are robust to alternative estimators and empirical strategies and suggest that decentralized authorities might lack the adequate bureaucratic structures to manage the execution stage efficiently.

Calogero Guccio, Giacomo Pignataro, Ilde Rizzo

Chapter 11. Urban Sprawl and Local Public Service Costs in Japan

Abstract

In this chapter, we measure the extent to which the suppression of urban sprawl reduces the marginal cost of providing local public services in Japan by estimating the local expenditure function. We expand on existing estimates in Japan by establishing a theoretical framework to economically interpret the estimated parameters. Specifically, we first derive the estimated local expenditure function by combining the supply and demand functions for local public services. Second, we implement the estimation using cross-sectional data from 2008 for 1085 Japanese municipalities. Overall, urban sprawl growth has a positive and significant impact on local expenditure, with the parameters for the relationship estimated to be between 0.011 and 0.055. This statistically significant and theoretically consistent outcome suggests that, in Japan, a one percent decrease in urban sprawl can reduce the marginal cost of providing local public services by 0.053–0.113%. These results contribute to the quantitative evaluation of compact cities.

Tomoya Ida, Hiroshi Ono

Chapter 12. Theoretical Analysis of the Strategic Provision of Public Childcare Service Administration by Private and Public Providers

Abstract

The analysis described in this chapter seeks to determine whether municipalities can provide adequate childcare services given the appropriate incentive design using the framework of principal-agent theory. We use the Laffont and Tirole model to show that even with rent-seeking behavior, securing a supply of childcare services and striving to resolve the issue of waiting lists for children would improve social welfare. Specifically, we find that allowing the movement of funds across budget items to raise the salary levels of childcare facility managers and lower the wages of nursery school teachers could solve the issue of long waiting lists.

Yurika Shiozu

Chapter 13. Efficiency of Italian Early Child Care Provision: A Bootstrapped DEA Assessment

Abstract

Socio-demographic changes and financial restrictions in the context of the economic downturn have stressed the importance of increasing the efficiency in the provision of local public services. Among them, early child care is regarded as a crucial service for the positive effect on children scholastic achievements, female labor market participation as well as aggregate fertility rates. This chapter aims at analyzing the efficiency in the provision of early child care in Italy and studying the impact of the demand-side factors. We apply a two-stage semi-parametric approach to a large sample of Italian municipalities in the period 2001–2005. First, a bootstrapped Data Envelopment Analysis (DEA) is used to estimate the performance in the provision of early child care; then, a semi-parametric truncated estimation is employed to study whether municipalities react to demand-side pressures, such as women participation to labor market, by increasing the efficiency in the provision. DEA results show a remarkable heterogeneity in the provision of child care across Italian municipalities. We also find that demand-side pressure affects the efficiency.

Calogero Guccio, Domenico Lisi, Marco Martorana

Chapter 14. The Economics of Heritage: Some Implications of Devolution

Abstract

In this paper, we focus on the political economic consequences of devolution of policies dealing with heritage conservation and valorization. In particular, the existence of local policymakers’ vested interests concerning the conservation of heritage—due to its positive effects on tourism—raises the issue of what set of functions, and class of heritage to devolve. Our political economic analysis shows that devolution may favor the conservation of heritage with ‘outstanding characteristics’ over more ‘local’ heritage, leading to an inefficient outcome. We then discuss different possible measures to correct for such a political inefficiency.

Marco Martorana, Isidoro Mazza, Anna Mignosa, Ilde Rizzo

Application of Political Economics and Empirical Analysis

Frontmatter

Chapter 15. Political Economics of Public Pricing of Final and Intermediate Goods

Abstract

In this chapter, we study the effect of lobbying by special interest groups on the optimal pricing rule of publicly produced final and intermediate goods. We show that when the weight that the government places on campaign contributions from a special interest group organized by workers increases, the price of publicly produced final goods decreases and that of intermediate goods increases. However, when the weight that the government places on campaign contributions from a special interest group organized by capitalists increases, the effect on the prices of final and intermediate goods depends on capitalists’ roles as both consumers and owners of firms. The effects of lobbying by workers and capitalists are asymmetric because the public enterprise must adhere to its budget constraint and because the roles of capitalists and workers in the economy differ.

Tsuyoshi Shinozaki, Mitsuyoshi Yanagihara

Chapter 16. Harmful Negativity Bias Under a Decentralized System: Retrospective Voting in Japanese Mayoral Elections 1983–2015

Abstract

The analysis described in this chapter considers retrospective voting in Japanese mayoral elections from the perspective of negativity bias and decentralization. This study has three main findings. (1) Retrospective voting is prominent for mayoral elections when the economic growth rate is lower, implying that macroeconomic conditions can affect even mayoral elections. (2) The probability of re-election tended to decline for incumbent mayors if the local indicators deteriorated, which is a healthy signal. (3) After decentralization, voters’ attitudes toward monitoring incumbents clearly changed in periods of low economic growth, as incumbents who presided over periods of declining local indicators were more favored in subsequent elections. Thus, voters’ messages to incumbents shifted such that our second result was partly offset after decentralization. We conclude with some implications of these results regarding uncritical faith in both representative democracy and decentralization.

Masashi Nishikawa

Chapter 17. Federalism, Party Competition and Public Expenditure: Empirical Findings on Regional Health Expenditure in Italy

Abstract

Since the ‘90s, Italy has experienced a considerable decentralization of functions to the regions. This transformation has been especially relevant for the National Health System that has de facto assumed a federal system design. The federal reform aimed to discipline public health expenditure that drains a substantial share of the budget of Italian regions and is among the main causes of the regional deficits. Political economic analysis, however, suggests that the impact of federalism on public expenditure depends on central and local government strategies to win the electoral competition. Results derived in this chapter indicate that political competition actually works as a tool of fiscal discipline, as it shows a restraining effect on public health expenditure.

Marina Cavalieri, Emilio Giardina, Calogero Guccio, Isidoro Mazza

Chapter 18. Linkage Between Benefit Expenditures and Premium Burdens: Long-Term Care Insurance in Japan

Abstract

The analysis described in this chapter considers the discretionary premium-setting behavior of municipalities in the Japanese system of long-term care insurance (LTCI) with respect to the link between benefit expenditures and premium burdens. Although the LTCI system is managed at the municipality level, the financial system is controlled by the central government, and municipalities seem to have no discretion over the financial system. However, our empirical analysis of benefit expenditures and premium-setting behavior shows that each municipality has a different premium-setting forecast. This result is contrary to the central government’s initial intention for the LTCI system. Specifically, the adjustment subsidy does not function in line with the intention of the system, affecting the standard premium-setting process. Moreover, contrary to expectation, our empirical results show that municipalities seem to have some discretion in setting premiums. In particular, cities set premiums low, reflecting the political power of elderly people. In addition, premiums might be more influenced by the elderly when fewer neighboring municipalities are available for reference.

Katsuyoshi Nakazawa, Kota Sugahara, Minoru Kunizaki

Titel: Advances in Local Public Economics
herausgegeben von: Minoru Kunizaki
Prof. Kazuyuki Nakamura
Dr. Kota Sugahara
Dr. Mitsuyoshi Yanagihara
Verlag: Springer Singapore
Electronic ISBN: 978-981-13-3107-7
Print ISBN: 978-981-13-3106-0
DOI: https://doi.org/10.1007/978-981-13-3107-7