Discussion Papers 2018

CIRJE-F-1105	"Municipal Mergers and Capitalization: Evaluating the Heisei Territorial Reform in Japan"
Author Name	Hayashi, Masayoshi and Takafumi Suzuki
Date	December 2018
Full Paper	PDF File
Remarks

Abstract
Based on the theory of land price capitalization, we evaluate the effects of municipal mergers by exploiting extensive municipal mergers in the Heisei territorial reform and dataset of land prices compiled by the Japanese government. We allow the effects of municipal mergers to vary over time—both ex-ante (as anticipation effects) and ex-post (as realized effects). Through a series of estimation, we find a robust pattern of the effect of municipal mergers. The ex-ante or anticipation effect gradually grows to culminate in the year just before the actual amalgamation. Once the merger is realized, the ex-post effect, starting with a smaller effect than the maximal anticipation effect in the previous year, gradually declines toward zero. This result then implies that the Heisei territorial reform yielded only temporal benefits that dissipated in the long run.

Abstract

Based on the theory of land price capitalization, we evaluate the effects of municipal mergers by exploiting extensive municipal mergers in the Heisei territorial reform and dataset of land prices compiled by the Japanese government. We allow the effects of municipal mergers to vary over time—both ex-ante (as anticipation effects) and ex-post (as realized effects). Through a series of estimation, we find a robust pattern of the effect of municipal mergers. The ex-ante or anticipation effect gradually grows to culminate in the year just before the actual amalgamation. Once the merger is realized, the ex-post effect, starting with a smaller effect than the maximal anticipation effect in the previous year, gradually declines toward zero. This result then implies that the Heisei territorial reform yielded only temporal benefits that dissipated in the long run.