The first AJRC seminar for 2017 will be held on Wednesday 15 February in Seminar Room 2 at the Crawford School. A light lunch will be provided. If you would like to attend, please RSVP by Monday 13 February.

This paper investigates whether municipal mergers could internalise spatial spillover effect by comparing before and after mergers, especially focusing on the local public library service in Japan. Spatial spillover effect occurs when benefit of local public service spreads not only across their own administrative districts but also into other neighboring ones. A free rider problem among municipalities could be caused when a municipality makes a policy decision how much it supplies its own local public service under the decentralisation system, recognising that there exists the spatial spillover effect. Under such a situation, we might be able to internalise spatial spillover effects through municipal mergers. In Japan, the boundary of administrative districts including municipalities have been determined based on traditional or historical reasons. However, a large scale municipal mergers has been taken place in FY2004 and FY2005 due to serious fiscal deficits and rapid aging population, and consequently the number of municipalities in Japan decreased from 3,232 to 1,820. In the light of these backgrounds, we examine whether municipal mergers could internalise spatial spillover effect focusing on Japanese local public library service by applying cross-sectional spatial autoregressive models. As the result, we found that there are spatial spillover effect in the public library service both in FY2001 (before) and in FY2008 (after). We also found that the impact of the effect in FY2008 is smaller than that in FY2001. These results imply municipal mergers could partially internalise spatial spillover effect among municipalities.

Joint authors of the paper: Hitoshi Satio, Hideo Yunoue, and Miki Miyaki.