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Municipal Merger and Debt Issuance in South African Municipality

Author

Listed:
  • Tsuyoshi Goto

    (Research Fellow of Japan Society for the Promotion of Science PhD. Student, Graduate School of Economics, Osaka University)

  • Sandra Sekgetle

    (Senior Economist, the National Treasury of South Africa)

  • Takashi Kuramoto

    (Associate Professor, Hirao School of Management, Konan University)

Abstract

Employing South African data and Difference-In-Difference (DID) method, this paper investigates whether the free-ride behaviour was taken by municipalities which faced their mergers before the municipal demarcation changes are executed. With several developed countries' data, many research show that there are opportunistic free-ride behaviours of municipalities such as over-issuance of debt before their mergers since the burden of them will be shared by newly constructed municipalities. In spite of these fruits of research, few solution is suggested in the literature. Considering this, we focus on the South African municipal mergers, where the upper government of municipalities implemented the policy for pre-merged municipalities to suspend new contracts involving the borrowing contract before the mergers. As a result of DID analysis, we show that South African municipalities did decrease the amount of borrowings before their mergers. This result is an opposite result considering the previous empirical researches and means that the proper policy for municipal mergers can prevent the fiscal common pool problem caused by free-ride behavior. In addition, this paper shed the light to utilize the data of developing countries and is the first paper to show there were reductions of borrowings before municipal mergers.

Suggested Citation

  • Tsuyoshi Goto & Sandra Sekgetle & Takashi Kuramoto, 2019. "Municipal Merger and Debt Issuance in South African Municipality," OSIPP Discussion Paper 19E001, Osaka School of International Public Policy, Osaka University.
    • Handle: RePEc:osp:wpaper:19e001
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    References listed on IDEAS

    as
    1. Sune Welling Hansen, 2014. "Common pool size and project size: an empirical test on expenditures using Danish municipal mergers," Public Choice, Springer, vol. 159(1), pages 3-21, April.
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    4. Hirota, Haruaki & Yunoue, Hideo, 2017. "Evaluation of the fiscal effect on municipal mergers: Quasi-experimental evidence from Japanese municipal data," Regional Science and Urban Economics, Elsevier, vol. 66(C), pages 132-149.
    5. Tyrefors Hinnerich, Björn, 2009. "Do merging local governments free ride on their counterparts when facing boundary reform?," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 721-728, June.
    6. Maarten A. Allers & J. Bieuwe Geertsema, 2016. "The Effects Of Local Government Amalgamation On Public Spending, Taxation, And Service Levels: Evidence From 15 Years Of Municipal Consolidation," Journal of Regional Science, Wiley Blackwell, vol. 56(4), pages 659-682, September.
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    More about this item

    Keywords

    Municipal merger; Common pool problem; Free ride;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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