Abstract
It remains unclear whether local jurisdictions consider their neighbors’ salary levels when making changes to their public sector salaries. Following the Great East Japan Earthquake and its aftermath, the Japanese central government introduced several policies aimed at reducing public sector salaries at the local government level, and local governments responded by reducing their employees’ salaries. This study empirically tests the existence of strategic interaction in relation to public sector salary setting among municipal governments in response to central government policies. Using a sample of Japanese municipalities from 2010 to 2016, we developed a spatial model that incorporates both spatial autoregressive disturbances and spatial dependencies. A quasi-experimental strategy was used to solve the endogeneity problem of the spatial lag-dependent variable. We found that changes in salary levels in Japanese municipalities are dependent on the salaries in neighboring municipalities. Several estimation methods were used and produced consistent results. Our study also suggested that yardstick competition could drive strategic interaction in relation to decision making regarding salaries. Moreover, when the central government’s top-down policy is effective, the strategic interactions in public salary settings among neighboring municipalities appear to be strong.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
The conversion rate is based on data from Morningstar for Currency and Coinbase for Cryptocurrency as at April 21, 2021.
Regarding the principle of equilibrium, see https://jica-net-library.jica.go.jp/lib2/08PRDM003/en/pdf/4_3_1.pdf.
Japan International Cooperation Agency (n.d.) provides a comprehensive overview of Japan’s local government system.
See Table 1 in the Online Appendix for variable definition, units, and sources.
We also run regressions of the year-to-year change specifications and reported in the Online Appendix.
References
Ahmad E, Brosio G (eds) (2009) Does decentralization enhance service delivery and poverty reduction? Edward Elgar Publishing Inc., Northampton, MA
Akai N, Suhara M (2013) Strategic interaction among local governments in Japan: an application to cultural expenditure. Jpn Econ Rev 64(2):232–247. https://doi.org/10.1111/j.1468-5876.2012.00581.x
Anselin L (2001) Spatial econometrics. A companion to theoretical econometrics. Blackwell Publishing Ltd, Chap. 14, pp 310–330
Arraiz I, Drukker D, Kelejian H, Prucha I (2010) A spatial Cliff-Ord-type model with heteroskedastic innovations: small and large sample results. J Reg Sci 50(2):592–614. https://doi.org/10.1111/j.1467-9787.2009.00618.x
Bartolini D, Santolini R (2012) Political yardstick competition among Italian municipalities on spending decisions. Ann Reg Sci 49:213–235. https://doi.org/10.1007/s00168-011-0437-5
Belman D, Heywood JS, Lund J (1987) Public sector earnings and the extent of unionization. Ind Labor Relat Rev 50(4):610–628. https://doi.org/10.2307/2525265
Brueckner JK, Neumark D (2014) Beaches, sunshine, and public sector pay: theory and evidence on amenities and rent extraction by government workers. Am Econ J Econ Policy 6(2):198–230
Caldeira E (2012) Yardstick competition in a federation: theory and evidence from China. China Econ Rev 23(4):878–897. https://doi.org/10.1016/j.chieco.2012.04.011
Case AC, Rosen HS, Hines JR (1993) Budget spillovers and fiscal policy interdependence evidence from the states. J Pub Econ 52(3):285–307. https://doi.org/10.1016/0047-2727(93)90036-S
Cerna L (2013) The nature of policy change and implementation: a review of different theoretical approaches. OECD, Paris
Deng H, Zheng X, Huang N, Li F (2012) Strategic interaction in spending on environmental protection: spatial evidence from Chinese cities. China World Econ 20(5):103–120. https://doi.org/10.1111/j.1749-124X.2012.01304.x
Javier A del G; Jorge M-V, Rentanida RS (2008) Local Government Fiscal Competition in Developing Countries: The Case of Indonesia. Urban Pub Econ Rev 8:13–45
Ehrenberg RG, Goldstein GS (1975) A model of public sector wage determination. J Urban Econ 2(3):223–245
Elhorst JP, Fréret S (2009) Evidence of political yardstick competition in France using a two-regime Spatial Durbin model with fixed effects. J Reg Sci 49(5):931–951
Elhorst JP, Vega SH (2013) On spatial econometric models, spillover effects, and W. ERSA Conference Papers No. ersa13p222. www-sre.wu.ac.at/ersa/ersaconfs/ersa13/ERSA2013_paper_00222.pdf
Ferraresi M, Migali G, Rizzo L (2018) Spillover effects in local public spending. Reg Stud 52(11):1570–1584. https://doi.org/10.1080/00343404.2017.1415429
Fossen FM, Mergele L, Pardo N (2017) Fueling fiscal interactions: commodity price shocks and local government spending in Columbia. Int Tax Public Finance 24:616–651
Gebremariam GH, Gebremedhin TG, Schaeffer PV (2012) County-level determinants of local public services in Appalachia: a multivariate spatial autoregressive model approach. Ann Reg Sci 49(1):175–190. https://doi.org/10.1007/s00168-010-0435-z
Gu J (2012) Spatial dynamics and determinants of county-level education expenditure in China. Asia Pacific Educ Re 13(4):617–634. https://doi.org/10.1007/s12564-012-9224-y
Hayashi M, Yamamoto W (2017) Information sharing, neighborhood demarcation, and yardstick competition: an empirical analysis of intergovernmental expenditure interaction in Japan. Int Tax Public Fin 24(1):134–163. https://doi.org/10.1007/s10797-016-9413-4
Ishida M (2015) Empirical analysis of salary reduction for local government employees (in Japanese). Fin Res 11:191–211
Japan International Cooperation Agency (n.d.) History of Japanese local government system - experiences from learning and reform. Multimedia-based learning material in FY 2008. https://jica-net-library.jica.go.jp/lib2/08PRDM003/index.html
Japanese National Diet (2011) Basic Act on reconstruction from the Great East Japan Earthquake, Act No. 76. English translation version. Retrieved on December 22, 2020, at https://www.reconstruction.go.jp/english/topics/ Basic_Act_on_Reconstruction.pdf
Kelejian H, Prucha I (1998) A generalized spatial two-stage least squares procedure estimating a spatial autoregressive model with autoregressive disturbances. J Real Estate Fin Econ 17(1):99–121
Kelejian H, Prucha I (2010) Specification and estimation of spatial autoregressive models with autoregressive and heteroskedastic disturbances. J Econom 157(1):3–67
Kim S, Park S (2019) Are spending patterns of local government independent?: Strategic interactions of U.S. local governments in California. Lex Localis 17(1):121–137
Kirimura T, Nakaya T, Yano K (2011) Building a spatial-temporal GIS Database about boundaries of municipalities: municipality map maker for web. Theory Appl GIS 19(2):139–148
Langer S (2019) Expenditure interactions between municipalities and the role of agglomeration forces: a spatial analysis for North Rhine-Westphalia. Ann Reg Sci 62:497–527. https://doi.org/10.1007/s00168-019-00905-2
Lenka Š (2009) Spatial interdependence of local public expenditures: selected evidence from the Czech Republic. Czech Econ Rev 3(1):07–025
LeSage JP (2014) What regional scientists need to know about spatial econometrics. Rev Reg Stud 44:13–32
Lundberg J (2006) Spatial interaction model of spillovers from locally provided public services. Reg Stud 40:631–644
Lyytikäinen T (2012) Tax competition among local governments: evidence from a property tax reform in Finland. J Public Econ 96(7–8):584–595
Matland R (1995) Synthesising the implementation literature: the ambiguity-conflict model of policy implementation. J Publ Adm Res Theory 5(2):145–174
Mehay SL, Gonzalez RA (1986) The relative effect of unionization and interjurisdiction competition on municipal wages. J Labor Res 7(1):79–93
Miyazaki T (2020) Intergovernmental fiscal transfers and tax efforts: Regression-discontinuity analysis for Japanese local governments. Reg Sci Urban Econ 84(2020):103554
Miyazaki T, Sato M (2017) Empirical studies on strategic interaction among municipality governments over disaster waste after the 2011 Great East Japan earthquake. J Jpn Int Econ 44:26–38. https://doi.org/10.1016/j.jjie.2017.03.001
Ministry of Internal Affairs and Communications (2013) 2013 Local finance relations. https://www.soumu.go.jp/iken/chizai_25.html
Morikawa M (2016) A comparison of the wage structure between the public and private sectors in Japan. J Jpn Int Econ 39:73–90. https://doi.org/10.1016/j.jjie.2016.01.004
Nikkei (2013a) Reduction of national civil servant salaries ends at the end of this year (in Japanese). https://www.nikkei.com/article/DGXNASFS15001_V11C13A1EB1000/
Nikkei (2013b) Mutual distrust over reduction of local government employee salary: focus on local government decisions (in Japanese). https://www.nikkei.com/article/DGXDASFS0804C_Y3A200C1EE8000/
Ohta S (2013) Determinants of salaries for local government employees – analysis using general city data. Jpn Inst Labor Policy Train 637:20–32
Parwanto NB, Oyama T (2015) Investigating the impact of the 2011 Great East Japan Earthquake and evaluating the restoration and reconstruction performance. J Asian Publ Policy 8(3):329–350. https://doi.org/10.1080/23307706.2015.1006764
Revelli F (2006) Performance rating and yardstick competition in social service provision. J Public Econ 90(3):459–475. https://doi.org/10.1016/j.jpubeco.2005.07.006
The World Bank (2014) Learning from Megadisasters: lessons from the Great East Japan Earthquake
Werck K, Heyndels B, Geys B (2008) The impact of “central places” on spatial spending patterns: evidence from Flemish local government cultural expenditures. J Cult Econ 32(1):35–58. https://doi.org/10.1007/s10824-007-9056-5
Yang C, Lee LF (2018) Strategical interactions on municipal public safety spending with correlated private information. Reg Sci Urban Econ 72:86–102. https://doi.org/10.1016/j.regsciurbeco.2017.03.003
Yu Y, Zhang L, Li F, Zheng X (2013) Strategic interaction and the determinants of public health expenditures in China: a spatial panel perspective. Ann Reg Sci 50(1):203–221. https://doi.org/10.1007/s00168-011-0488-7
Acknowledgements
We are grateful to Prof. Hiroki Tanaka and participants at the 2021 Spring Meeting of the Japanese Economic Association and the 2021 Spring Meeting of the Japanese Association for Applied Economics for useful comments and suggestions. We also thank Geoff Whyte, MBA, from Edanz Group (https://jp.edanz.com/ac) for editing a draft of this manuscript. This study was supported by the Japan Society for the Promotion of Science (JSPS) KAKENHI (Grant Numbers 19K01697) and the Monbukagakusho (MEXT) Scholarship.
Funding
Japan society for the promotion of science (Grant Numbers 19K01697; 22K01519) Dr. Takeshi Miyazakihttps://doi.org/10.13039/501100001691
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Supplementary Information
Below is the link to the electronic supplementary material.
Rights and permissions
Springer Nature or its licensor holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Nguyễn, D.T., Miyazaki, T. Strategic interaction among Japanese municipalities regarding public servant salary levels. Ann Reg Sci 71, 463–485 (2023). https://doi.org/10.1007/s00168-022-01173-3
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00168-022-01173-3