The fiscal effects of cross-prefectural border municipal mergers: evidence from Japan using the synthetic control method

The purpose of this paper is to investigate whether social connectedness can mitigate the fiscal common pool problem in municipal mergers, as many studies have primarily focused on whether this problem occurs. I employ the synthetic control method by using higher-level government borders to identify the moderating effects of social connectedness. The findings reveal that subordinate partners in cross-prefectural border mergers significantly reduce their bonds and construction expenses just before the mergers. Merger partners with strong incentives to merge do not create fiscal common pool problems, which is the opposite of previous studies. The result might imply the potential effectiveness of merger support policies that prioritize social connectedness.