Munich Personal RePEc Archive

Free-rider behavior under voluntary amalgamation: The case of setting the long-term care insurance premium in Japan

Nakazawa, Katsuyoshi (2016): Free-rider behavior under voluntary amalgamation: The case of setting the long-term care insurance premium in Japan.

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Abstract

Amalgamation offers municipalities an incentive to free ride when they can subrogate the load onto the newly created municipality after amalgamation. However, the doubt about whether the merged municipalities were really selected at random remains, especially in the case of voluntary amalgamation. Moreover, the pre-merger municipality’s debt accumulation or public spending expansion before amalgamation cannot be confirmed as free-rider behavior because these municipalities might have only developed the infrastructure in preparation for the amalgamation. Based on the foregoing, this study divides pre-merger municipalities into two groups: those that had the chance to free ride when setting the long-term care insurance premium and those that did not. Moreover, it focuses on the revision of the long-term care insurance premium as the target of free-rider behavior. The regression results confirm that only pre-merger municipalities that formed amalgamation committees before FY2003 and approved amalgamation after FY2003 showed free-rider behavior. These municipalities revised the long-term care insurance premium lower than never-merged and pre-merger municipalities that formed amalgamation committees and approved amalgamation after FY2003.

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