Discussion Papers In Economics
And Business

Does Broader-Based Local Government affect Expenditure on Public
Long-Term Care Insurance? The Case of Japan

Haruaki Hirota

Hideo Yunoue

Discussion Paper 08-34

Graduate School of Economics andOsaka School of International Public Policy (OSIPP)
Osaka University, Toyonaka, Osaka 560-0043, JAPANDoes Broader-Based Local Government affect Expenditure on Public
Long-Term Care Insurance? The Case of Japan

Haruaki Hirota

Hideo Yunoue

Discussion Paper 08-34

September 2008

この研究は「大学院経済学研究科・経済学部記念事業」
基金より援助を受けた、記して感謝する。

Graduate School of Economics andOsaka School of International Public Policy (OSIPP)
Osaka University, Toyonaka, Osaka 560-0043, JAPANDoes Broader-Based Local Government affect Expenditure on Public
Long-Term Care Insurance? The Case of Japan ∗Haruaki Hirota † Hideo Yunoue ‡Abstract
This paper considers the possible effects of broader-based local government, especially extended
associations, in Japanese local public finance. We mainly analyze scale effects in public long-term careinsurance expenditure, with our results indicating a U shaped expenditure structure.
We also show that expenditures associated with extended associations decrease more rapidly thanordinary municipal expenditures. These findings suggest that expenditure of appropriate population size
extended associations larger than single municipality.

Key words: local public finance, scale effects, broader-based local government, extended association,
long-term care insurance
JEL Classification: H73, H75, H83∗

This is a revised version of a paper presented to the 2008 Japan Public Choice Society at Kansai University. The author is
grateful to Shin Saito, Yasuhiro Yamauchi, Katsuyoshi Nakazawa, Nobuo Akai, and Kazuyasu Kawasaki for their helpfulcomments and suggestions. The usual disclaimer applies. Yunoue acknowledges the financial support of a Japan Society for
the Promotion of Science, Grant-in-Aid for Scientific Research No. 20830048.

†‡

Corresponding author. Haruaki Hirota, Graduate School of Economics, Osaka University, 1-7, Machikaneyama, Toyonaka,
Osaka 560-0043, Japan E-mail:ege008hh@mail2.econ.osaka-u.ac.jp
Hideo Yunoue, Osaka School of International Public Policy, Osaka University; 1-31 Machikaneyama, Toyonaka, Osaka,
560-0043, Japan. E-mail:yunoue@osipp.osaka-u.ac.jp

1. Introduction

In recent years, Japan has suffered from severe fiscal problems, particularly in local government.
With the advance of decentralization, the role of the local government has become increasingly
important, and there has been the active promotion of ‘municipal mergers’ 1 (shi-tyou-son-gappei) and‘broader-based local government’ (kouiki-gyousei) through extended association to strengthen local
administration and achieve fiscal reconstruction. Through the municipal merger process known as
Heisei-no-Daigapei, the number of municipalities in Japan decreased from 3,232 in 1999 to 1,820 in2006. At the same time, other municipalities have organized extended associations. There are, however,some municipalities that did not merged. In this case, implementing broader-based local government,
municipality might be able to achieve appropriate and flexible fiscal management in local public service.
Throughout this process, arguments over the ‘wider-area local government system’ (Dou-shu-sei) 2 thatseeks to divide Japan into small blocks will likely remain.
Some studies have already analyzed local public finances in Japan. We briefly summarize their results
as follows. Saito (1999), for instance, argued for the estimation of scale effects for each type of local
government expenditure. One implication is that it may be better to consider broader-based local
government than municipal mergers for some local public services. Akai and Takemoto (2008) alsostudied the efficient administration area for each type of expenditure in local government. They
recommended the transfer to higher-level governments of some public services currently provided by
local governments. However, while many studies concern municipal mergers and the wider-area local
government system in Japan, few consider broader-based local government. For example, a number ofmunicipalities in Japan currently organize an extended association for fire protection, garbage disposal
services and public long-term care insurance (LTCI), with one justification for broader-based local
government being the presence of scale effects.
1
2

Hirota (2007) studied the incentive for municipal mergers in local public finance using a multinomial and nested logit model.
The wider-area local government system currently under discussion in Japan differs from the state and county system in the
United States. Unfortunately, space does not permit discussion here.

1

In view of an aging society, public LTCI commenced in Japan in 2000: Germany has adopted a similar
program for the diversification of various risks. Municipalities and extended associations manage thisprogram throughout the country. The municipality sets service content and premiums based on thesituation in each area. The main difference between Japan and Germany is the fiscal burden of LTCI.
While German insurers only levy insurance premiums from their residents, Japanese insurers receive
both insurance premiums and transfers from the general account. If the fiscal condition of Japanese
insurers then worsens, the general accounts of local government must then support the long-term careinsurer through their own tax revenues. Thus, it is important to investigate the financing of LTCI in
Japan.
In recent years, several studies have been devoted to the study of the relationship between public
LTCI and local public finance in Japan. For instance, Tajika and Yui (2004) argued that the subsidy
caused moral hazard. Using data from 2001 and 2002, Yamauchi (2006) showed that public LTCI office
expenditure decreased because of scale effects. 3 In some studies, the empirical effects of a wider area of
local government have been suggestive but tentative. Yamauchi (2006) concluded that the term forbroader-based local government is insignificant.
The purpose of this paper is to estimate the possible effects of broader-based local government,
including extended association, in Japanese local public finance. First, we analyze the scale effects ofpublic LTCI expenditure. We extend the model in Yamauchi (2006) by introducing data from 2003 and2005. This is because Yamauchi (2006) only used data from the first two years following the
introduction of public LTCI in 2000; on this basis, it would be difficult to determine the true effect ofbroader-based local government. Second, we compare ordinary municipalities and those resulting frommunicipal mergers and extended association (multi and single tasks) by adding dummy variables to theestimated equation. This is useful for pointing out fundamental differences in the system of local
government.

3

Also, Yamauchi (2008) studied the incentive for broader-based local governance in public LTCI using a multinomial logit
model.

2

Using estimated expenditure of a similar type as our principal independent variable, our results reveal
the existence of fiscal policy interdependence. This is because in fiscal policy decisions, municipal
expenditure may depend on expenditures in similar municipalities (see, for example, Case et al. (1993)
and Revelli (2005)). Therefore, this estimation employs a financial index table of organizations andmunicipalities classified by similar types.
The rest of the paper is organized as follows. Section 2 discusses municipal mergers andbroader-based local government. Section 3 presents the empirical method using cost functions anddescribes the data set. Section 4 provides the results of the estimation and Section 5 concludes the paper.

2. Municipal Mergers and Broader-Based Local Government

The previous section discussed the system of local government in Japan. Generally, the main reason
for promoting wider-area government is expectations of fiscal sustainability through an expansion inscale. The focus of this paper is whether differences in local government influence local public
expenditure.
To start with, we explain the system of wider-area government in Japan. This system draws on two
patterns: municipal mergers and broader-based local government. 4 The key difference is whether themunicipality merges with other municipalities or cooperates with existing municipalities in providing
some local public service. The principal objective of municipal mergers is to achieve a strengthening ofadministration and an improvement in its fiscal condition. In local public finance, mergers can be used
as a means of reducing expenditure because of the presence of economies of scale in total expenditure.
However, we should note that the merger of existing municipalities could also lead to inefficient
expenditures because of adjustment costs.

4

For a discussion of broader-based local government, see Yamauchi (2008) and the MIAC website at
http://www.soumu.go.jp/kouiki/kouiki.html.

3

Broader-based local government may be divided into two types: multitask extended association(Kouiki-rengo) and single task extended association (Ichibu-jimu-kumiai). The main difference iswhether a multiple or single service is provided. Further, multitask extended association involves astronger level of authority than single task extended association. For example, local government rules
may need changing in municipalities of extended association and the setting up of a conferencecomprising local government representatives. As a result, differences among authorities influence
expenditure in extended associations.
Table 1 show the numbers of municipalities in multitask extended association in 2003. On average,
there are eight municipalities in each multitask extended association. Table 2 also shows the number ofmunicipalities in single task extended association in 2003. There are about six municipalities on averagein each single task extended association. The smallest number in any municipality for both forms ofextended association is three. The highest number in a single task extended association is 17 in
Shimabara, though in the Fukuoka multitask extended association there are 71 municipalities. 5

3. Empirical Analysis
3.1 Empirical Model

When considering the provision of Japanese public LTCI, local public government aims to minimize
costs while achieving some certain level of public service. Following Yamauchi (2006), the regression
equation is:

Ei = β 0 + β1 ln popi + β 2 (ln popi ) 2 + β 3r _ over 40i + β 4 ( pop65 / pop 40)i
+ β 5 r _ LTCIpaymentsi + β 6 r _ transferi + β 7 groupi + β 8 ln wi + β 9 MDi + β10 Di + ε i, (1)where i refers to municipality i , β represents the coefficients of the independent variables, and ε i is
5

There are 96 in municipality in Fukuoka prefecture. It is to be notice that this particular municipality accounts for 76% of allmunicipalities in the Fukuoka prefecture.

4

an error term composed of identically independent random variables with a normal distribution. The
variable E i is per capita office expenditures on public LTCI between 2003 and 2005. There are two
reasons for specifying office expenditure. First, the primary purpose of this study is to explain scaleeffects in broader-based local government. Administrative capacity of extended association can bestrengthened by interaction with other municipalities, allowing joint work of handling of public LTCI.
Second, temporary expenditure not observed in our data set, such as construction costs, increases total
expenditure. The variable ln popi is population (in logs) and ln wi is the average wage of public
officers (in logs). As an environmental factor, the level of population controls for the scale effects inlocal government expenditure. A U shape arises in equation (1) when βˆ1 is negative and βˆ 2 is positive;
this captures the increasing effect of population on office expenditures.
All insured persons aged over 40 years are included in the public LTCI program. These comprise twocategories. The first category includes persons aged 65 years or over. The second category includes
those aged between 40 and 65 years.

r _ over 40 i represents the ratio of citizens aged 40 and over to the entire population in i thmunicipality. The ratio of citizens of over 65 to citizens aged over 40 represents aging population in
LTCI. r _ LTCIpayments i is the rate of the number of LTCI payments to aged over 65; this variable
shows the density of payments. r _ transferi represents the ratio of transfer from the upper government
to total revenue in municipality i . When municipalities supply public LTCI, their revenues include not
only the premiums they collect but also subsidies from upper level governments. There is a possibility
that transfers increase LTCI expenditure.
The variable groupi represents the number of municipalities included in an extended association.
An increase in the number of members requires greater expenditure. Di is a dummy variable indicating
the difference in intercept of ordinary municipalities and those in an extended association. Ordinarymunicipalities are the reference group. MDi is a dummy variable taking a value of one if themunicipality has merged and zero otherwise. Equation (1) is estimated using ordinary least squares(OLS) and cross-sectional municipal level data. The extended association data used in this estimation is5comparable with the municipal data. We also estimate the model by adding an interaction term between
municipalities and extended associations. We employ heteroskedasticity robust standard errors inestimating the equations. 6

3.2 Data

Table 3 summarizes the characteristics of the data used. 7 The fiscal data on public LTCI is mainly
derived from the Kaigo Hoken Tokubetsu Kaikei (Ministry of Health, Labor and Welfare), while the dataon the Japanese municipalities is from the Shi Tyo Son Betsu Kessan Jyokyo Shirabe (Ministry ofInternal Affairs and Communications, MIAC). The number of observations (including extended
associations and municipalities) vary during the sample period with 2,632 in 2003, 2,183 in 2004, and1,633 in 2005. 8 There are also some missing values on wages and the number of local officers in theextended associations. The number of wage and local officers of extended association represented it in
the mean value of the relevant municipalities. The extended association (E.A.) dummy is made by threepatterns. First, E.A.dummy=1 when the municipality set up extended association, otherwise zero.
Second, E.A.dummy different multitask E.A. from single task E.A. The expenditure structure of these
two types of extended association differ across the three groups. Third, we estimate the model by adding
an interaction term. In 2003, 2004, and 2005, the number of multitask and single task extended
associations is 35, 30, and 26 and 29, 21, and 13, respectively. Tables 4 and 5 summarize thecharacteristics of the extended association data.
Figure 1 provides a scatter diagram of per capita office expenditure and logged population in 2003.
This figure literally implies that at low values of logged population, one additional logged population
has a negative effect on per capita office expenditure. At some point, the effect becomes positive, and6

See Wooldridge (2005)
MIAC Website (Kouiki Gyosei) http://www.soumu.go.jp/kouiki/pdf/rengo_H20.pdf
MIAC Website (Gapei Soudan Corner) http://www.soumu.go.jp/gapei/
MHLW Website (Kaigo Hoken Jigyo Hokoku) http://wwwdbtk.mhlw.go.jp/toukei/kouhyo/indexk-kousei.html#kou7
8
We exclude isolated islands and the 23 wards in Tokyo from our sample because their services differ from those of typicalJapanese municipalities.
76

the U shape means that per capita office expenditure with respect to logged population is increasing as
logged population increases.

3.3 Municipal Organizations by TypeWe also consider the fiscal condition of public LTCI on municipalities. We use the financial index
table of organizations and municipalities classified by similar types compiled by the MIAC. This index
compares each municipality’s own fiscal condition with fiscal conditions in other municipalities. With
the aim of providing comparison data, the MIAC has created a category of municipalities classified bysimilar types (hereafter abbreviated as “similar type”). Each category of municipal organizations bysimilar type employs criteria that measure population and the ratio of secondary and tertiary industry incities (except for ordinance-designated cities) and towns and villages. Table 6 provides the matrix of thecategories of similar types and the number of municipalities in each type.
Using this index, we can compare the expenditure of municipality and extended association. The
expenditure of a municipality might be “similar” to the expenditure of another municipality in the same
similar type. For the purposes of comparison of expenditure of each municipality with municipality withsimilar type,the value of estimated expenditure is calculated using the following steps: E i is each~municipality’s real office expenditure. E i represents the estimated office expenditure of a similartype.
In the ordinary municipal case, for example, we consider the case of Iizuka city which belong to typeis III–5. There are 37 municipalities in this type (see Table 7). The estimated expenditure of Iizuka city
is calculated using the following equation,E+ E ( III − 5 ), 2 + L + E ( III − 5 ), 36~
E mun , Iizuka = ( III − 5 ),1. (2)37 − 17

Equation (2) represents estimated expenditure with a similar type. The numerator of equation (2) is
sum of expenditure with type III-5 except for Iizuka city. The denominator of equation is the number ofmunicipalities in type III-5 except for Iizuka city. We can use this calculating formula in othermunicipalities. Thus, the general formulation is as follows:~
E mun , i =∑ E

i ∈ S type

− E i

type

n type, (3)− 1for type ∈ [0 − 0 LLVIII − 4].
where E~mun , irepresents the i th municipality and set of municipalities S type whose type is the same as i .

Now consider the extended association. For example, the Hidaka multitask extended association
comprises three towns (Niikappu, Shizunai, and Mitsuishi). The population of Niikappu is 6,204
persons. The secondary industry ratio is 15.8%. The tertiary industry ratio is 41.2%. A similar type oftown to Niikappu is classified II-0. Likewise, the respective population and secondary and tertiaryindustry ratios are 23,125 persons, 19.9%, and 62.6% in Shizunai and 5,313 persons, 18.3%, and 39.3%
in Mitsuishi. Therefore, town types VI-2 and I-0 (Table 6) classify Shizunai and Mitsuishi, respectively.
In the case of the Hidaka extended association (there are 32 municipalities in type II-0, 12 in typeVI-2, and 52 in type I-0, see Table 7), our estimated expenditure equation takes the form:

E(II−0),1 +L+ E(II−0),31 E(VI−1),1 +LE(VI−1),11 E(I −0),1 +L+ E(I −0),51~
EEA,k =
+
+
32−1
12−1
52−1
. (4)
~
~
~
= Emun,Niikappu+ Emun,Shizunai+ Emun,Mitsuishi

Each municipal and extended association faces estimated expenditure of a similar type:~
E EA , k =~∑ E

i ∈ S EA , k

8

mun

,i

(5)

~

Similarly, E EA ,k in equation (5) represents the k th extended association and set S EA ,k represents asimilar type of extended association.

>Ei= 1 . (6)~E EA , k<Equation (6) represents the ratio of observed office expenditure to estimated expenditure. Figure 2
compares the estimated expenditure of a similar type with actual office expenditure. As shown, this ratio
is nearly one in ordinary municipalities, while the mean in multitask extended associations is 0.93 and1.04 in the single task extended associations. 9 This suggests that multitask extended associations areable to provide broader-based local government at lower cost.

4. Empirical Results

4.1 Scale Effects

The empirical results are reported in Table 8. 10 The regression estimate for the population term isstatistically significant at the 1% level. Because the coefficient on ln popi is negative and thecoefficient on the squared term is positive, this literally implies that at low values of logged population,an additional logged population has a negative effect on per capita office expenditure. At some point, theeffect becomes positive, and the U shape means that per capita office expenditure with respect to logged

9

The ratio of the Iga multitask extended association has the highest score of 2.19.
Table 5 is for 2003. Detailed results for 2004 and 2005 are available upon request.

109

population is increasing as logged population increases. In general, the population coefficients for eachdata set are almost identical. This finding is in agreement with the account in Yamauchi (2006). The
demographic structures of the population aged over 40 years and over 65 years are significantly
positive. 11 The results show that the progress of aging society in the LTCI increases office expenditure,
because of the ratio of over 65 is positive significant. The coefficient of transfer ratio, represented in allcases, is significant. Thus, an increase in transfer may pose moral hazard problems. The dummy variable
for extended association is statistically significant and positive at the 1% level in column (1). In column(2), the single task dummy is positive and significant, but the dummy for multitask association is
insignificant. However, the multitask dummy has a positive coefficient. 12 This needs further
consideration. To interpret the coefficients on the dummy variables, we must remember that thereference group is municipalities. Comparing the dummy variable coefficients, the order is ordinarymunicipality < merged municipality < multitask extended association < single task extended
association.
We add an interaction term to extended association in columns (3) and (4). The interaction term of the
population is statistically significant. The slope of the population of extended association decreases
rapidly. Figure 3 shows the estimated population value by ordinary municipality and extended
association. The scale effect of extended association is larger than that of ordinary municipality. In termsof cost efficiency, one way to decrease local government cost is through merger. However, if anappropriate population size is possible, extended association can also achieve a cost decrease.

4.2 Fiscal Policy Interdependence: The Case of LTCI in Japan

This section identifies public expenditure interdependence in public LTCI. If municipality i has

11

In place of aged over 65 years, we included a variable for aged over 75 years. However, the empirical results remainunchanged.
12
There is the possibility that the group variable influences estimation because the Fukuoka multitask extended association iscomposed of 71 municipalities. However, the estimation results did not change when we excluded Fukuoka from oursample.

10interdependence with policy decisions in municipalities of a similar type, it may influence its
expenditure. Our attempt at classification by similar type helps us better understand a spatially andtemporally varying local government. Recent empirical models of fiscal policy interdependence have
employed spatial econometrics methods (for example, Anselin (1988), Case et al. (1993), Revelli (2005),
and Geys (2006)). 13
For estimation, we can write the linear specification as:~
E i = β 0 + β X i + λ E i + ε i , (7)where β 0 is the constant term, and X i are independent variables as in equation (1). In addition to thesevariables, the estimated expenditure with similar type E~

iis used. 14 The parameter λ is supposed toreveal that municipality i and municipalities classified by similar type have interdependence. Generally,
the empirical model of spatial interdependence has two problems. 15First, estimating equation (7) with OLS may result in a biased coefficient estimate because thedependent variable, office expenditure, and estimated expenditure as an independent variable invoke
simultaneity in the determination of fiscal policy. As a result, the estimation in this paper uses lagged
estimated expenditure in 2001. 16 Therefore, it deals with simultaneity by using lagged variables.
Second, the estimated expenditure of a similar type correlates with the error term (spatial
autocorrelation). This may also provide inconsistent estimators using OLS. Instead, the estimation
should use instrumental variables (IV) and two-stage least squares (2SLS) or maximum likelihood (ML)estimation (see Anselin (1988)). However, a number of factors contribute to heteroskedasticity inaddition to spatial autocorrelation when municipalities in Japan are considered. Unfortunately, it is13
14

Sugawara and Kunisaki (2006) studied for fiscal competition among Japanese prefectures.
~of below value represents below the mean value of the similar type, which belongs.
Ei

15

For further details of spatial econometrics methods, see Anselin (1988) and Revelli (2005). However, the fuller study ofspatial interdependence lies outside the scope of this paper.
16
The public LTCI program was introduced in Japan in 2000. However, data from 2001 is used because of problems with the
postponement of insurance premiums in 2000.

11

difficult to make these specific. Therefore, equation (7) is estimated using heteroskedasticity robust
standard errors.
The empirical findings are reported in Table 9. X i are almost the same as in Table 8 excluding the~~municipal mergers dummy. The coefficients of E i and E i of below value of municipal i are
estimated to be positively significant at the 1% level. The results provide convincing evidence that
expenditure in municipality i contributes to expenditure of municipalities of a similar type. In otherwords, there is a possibility that municipality i and municipalities of a similar type are interdependent
in fiscal policy decisions on public LTCI. Consequently, expenditure in municipality i increases with~expenditure in similar municipalities. The coefficient of E i of below value of municipal i is 0.529.
This has a larger influence on fiscal policy decisions on expenditure by municipality i .

5. Conclusion

The purpose of this paper is to provide empirical evidence of the differences in expenditure structures
between ordinary municipalities and extended associations in public LTCI. The main finding is that
there is indeed a difference in the expenditure structure between ordinary municipalities and extended
associations. The expenditure structure is also found to be U shaped. In addition, the expenditure ofextended associations decreases more rapidly than ordinary municipalities. This result shows that
expenditure of appropriate population size extended associations larger than single municipality.
Accordingly, existing municipalities are too small to provide local public services such as public LTCI.
That said, the prefecture, as the municipality’s upper government, is too large because it is impossible toprovide generous care. In this case, it is necessary for Japanese municipalities to apply broader-based
government in local public service.
This paper also examined fiscal policy interdependence in expenditures on LTCI. This revealed

12municipal expenditure depends on expenditures by municipalities of a similar type. In other words, thefact that members of a similar type influence municipal policy decisions indicates the possibility of
mimic policy decisions. While this is too involved a subject to treat in detail here, we cannot rule out
entirely the possibility of mimicking.
Most importantly, while municipal mergers were widely promoted in Japan, some small
municipalities (such as towns and villages) remain. Our findings show that municipal mergers are notthe only solution to fiscal reconstruction. Rather, the extended association system is effective in percapita expenditure savings. These stand-alone municipalities are then able to improve their fiscal
condition with the extended association system.

References[1] Akai, N. and Takemoto, T. (2008) “Kouritsuteki gyousei kuiki to jimu haibun ni kansuru
jishobunseki”, Bunkenka Jdai no Tihou Zaisei Tyuou Keizai sha, pp. 231–272 (in Japanese).
[2] Anselin, L. (1988) “Spatial Econometrics: Methods and Models”, Dordrecht: Kluwer Academic.
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[4] Case, A., Hines, J. and Rosen, H. (1993) “Budget Spillovers and Fiscal Policy Interdependence:
Evidence from the States”, Journal of Public Economics, 52, pp. 285–307.
[5] Geys, B. (2006) “Looking across Borders: A Test of Spatial Policy Interdependence using Local
Government Efficiency Ratings”, Journal of Urban Economics, 60, pp. 443–462.
[6] Hirota, H. (2007) “Verification of Municipal Incorporation with Discrete Choice Model”, Planning
Administration, 30, 4, pp. 75–81 (in Japanese).
[7] Revelli, F. (2005) “On Spatial Public Finance Empirics”, International Tax and Public Finance, 12,
pp. 475–492.
13[8] Saito, S. (1999) “Local Government Size and Economics of Scale”, ToshiMondai, 90, 3, pp. 27–37(in Japanese).
[9] Sugahara, K. and Kunizaki, M. (2006) “Fiscal Competition among Japanese Prefectures”, Keizai
Ronshu Aichi University Journal of Economics, 171, pp. 1–29 (in Japanese).
[10] Tajika, E. and Yui, Y. (2004) “Japan’s Long-Term Care Insurance”, Financial Review, 72, pp.
78–104 (in Japanese).
[11] Wooldridge, J.M. (2005) “Introductory Econometrics: A Modern Approach”, Third Edition
Southwestern Publications.
[12] Yamauchi, Y. (2006) “Economies of Scale in Public Long-Term Care Insurance”, Japan Economic
Research, 55, 10, pp. 99–110 (in Japanese).
[13] Yamauchi, Y. (2008) “Incentive for Broader-Based Local Governance in Social Security Finance: A
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Policy Studies, 12, 2, pp. 127–143 (in Japanese).
[14] Yoshida, A. (2007) “Budgetary Systems and Moral Hazard in National Health Insurance andLong-term Care Insurance”, Economic and Social Research Institute, International Collaboration
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Declining and Aging Population (Chapter 8).

14

Tables and Figures
Table 1. Multitask Extended Associations

Name
HidakaSorachiHiyamaIchinoseki
Kuji
Hakusanroku
Sakai
Kitaarupusu
Kiso
Suwa
Anpachigun
Ibi
MotosuTakayama-Ono
Titahokubu
Iga
KihokuNum. of municipalities Name
3
Kinan
6
Kazushi4
Suzuka3
Konishi
6
Kusunoki
5
NanbuMikaya
5
Unnan
7
Oki
11
Oku
6
Suouoshima
4
Miyoshi8
Tyugei3
Fukuoka
9
Sagatyubu
4
Nishisonogi
6
Hokushounanbu
3
Hioki

Num. of municipalities
5
6
3
6
3
4
10
7
3
4
8
5
71
18
9
6
7

Notes: Num. of municipalities is the number of member municipalities in the extended association.
For example, there are three municipalities in Hidaka.

15

Table 2. Single Task Extended Associations

Name
NinoheMoriokahokubu
HonjyoOmagariNiihari
Osato
Higashikanbara
Imizu
Nakaniikawa
TonamiKamineiNiikawa
Yodakubo
Tagatananbu
WataraiNum. of municipalities Name
5
Kumanogawa
6Otashi
9
Aki
14
Izumoshi
4
Matue
9
Othigun4
Hamada5
Ashin
3
Kamiishi
12
Karatu
6
Kitou
4
Tosu
3
Shimabara
3
Simogotou
4Num. of municipalities
3
3
3
7
9
7
6
5
4
10
12
6
17
6

Notes: Num. of municipalities is the number of member municipalities in the extended
association. For example, there are five municipalities in Ninohe.

16

Table 3. Summary Statistics, 2003
Variables
Total expenditure (thousands of yen)
Office expenditure (thousands of yen)
LTCI payments (thousands of yen)
Population
Pop.over 40
Pop.over 65
Number of care insurance payments
Group
Total revenue (thousands of yen)Transfer (thousand of yen)
Total wage (thousands of yen)
Public officer
Per capita expenditure
Per capita office expenditure
Per capita LTC payments
Per capita wage of public officer

Obs.
2,630
2,630
2,630
2,630
2,630
2,630
2,630
2,630
2,630
2,630
2,630
2,630
2,630
2,630
2,630
2,630

Mean.
1,886,668
68,9091,782,518
44,22422,876
1,292
28,6941
1,913,814
56,297
3,417,030
362
58.11
2.29
54.38
9,033.51

Std. Dev.
5,650,858
230,404
5,355,100
140,798
69,4294,114
90,2972
5,682,864
193,982
11,500,000
1,137
22.79
1.68
21.40
864.06

Min.
20,910467
16,622
219
124
15
196
1
24,310190
137,038
15
16.28
0.03
14.55
4,212.99

Max.
118,000,000
6,698,898
111,000,000
3,495,117
1,651,255
100,0632,001,295
71
118,000,000
5,713,811
324,000,000
31,048194.3718.85
185.1913,665.70

Notes: Pop. over 40 represent the population of 40 over to total population ratio in municipality.
Similarly, Pop. over 65.

17

Table 4. Summary Statistics: Multitask Extended Associations, 2003
Variables
Total expenditure (thousands of yen)
Office expenditure (thousands of yen)
LTCI payments (thousands of yen)
Population
Pop.over 40
Pop.over 65
Number of care insurance payments
Group
Total revenue (thousands of yen)Transfer (thousand of yen)
Total wage (thousands of yen)
Public officer
Per capita expenditure
Per capita office expenditure
Per capita LTC payments
Per capita wage of public officer

Obs.
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30

Mean.
6,940,464
197,341
6,600,357
130,41470,834
4,772
103,6598
7,008,914
157,598
10,900,000
1,173
60.04
2.09
56.63
8,963.22

Std. Dev.
12,700,000
260,358
12,200,000
203,084
111,081
8,742
183,565
12
12,700,000
174,977
15,700,000
1,595
20.84
1.38
19.40
840.32

Min.
563,331
25,313525,090
7,822
4,657
343
7,732
3
576,549
17,193
1,958,806
249
27.14
0.61
25.75
7,187.99

Max.
71,300,000
1,397,466
68,500,000
1,081,236
605,006
49,252
1,032,709
71
71,500,000
754,835
85,000,000
8,769
113.736.51
107.86
11,628.78

Notes: Pop. over 40 represent the population of 40 over to total population ratio in municipality.
Similarly, Pop. over 65.

18

Table 5. Summary Statistics: Single Task Extended Associations, 2003
Variables
Total expenditure (thousands of yen)
Office expenditure (thousands of yen)
LTCI payments (thousands of yen)
Population
Pop.over 40
Pop.over 65
Number of care insurance payments
Group
Total revenue (thousands of yen)Transfer (thousand of yen)
Total wage (thousands of yen)
Public officer
Per capita expenditure
Per capita office expenditure
Per capita LTC payments
Per capita wage of public officer

Obs.
23
23
23
23
23
23
23
23
23
23
23
23
23
23
23
23

Mean.
5,423,309
170,889
5,097,782
99,12355,491
3,514
73,264
6.52
5,502,372
116,459
8,237,594
903
67.44
2.49
63.45
9,066.64

Std. Dev.
3,748,063
117,0433,476,562
86,93045,2832,457
50,742
3.68
3,779,194
86,9135,566,734
590
24.49
1.43
23.07
661.94

Min.
598,566
37,094
549,724
6,485
4,502
422
8,142
3.00
607,5146,000
1,444,193
154
33.69
0.65
29.19
7,915.92

Max.
13,100,000
482,001
11,800,000
387,776
199,170
8,701
181,22217.00
13,100,000
351,829
24,200,000
2,531
122.02
5.72
117.16
10,074.96

Notes: Pop. over 40 represent the population of 40 over to total population ratio in municipality.
Similarly, Pop. over 65.

19

Figure 1. Scatter Diagram of Per Capita Office Expenditure and Population, 2003

0

Per capita office expenditure
5
10
15

20

Scatter510ln(pop)20

15

Table 6. Municipal Organizations by Type, Ministry of Internal Affairs and Communications, 2001
CitiesOver 95%
Secondary and Tertiary
Tertiary
Over 65%
Less than 65%
Population
Type5
4~35,0000
0-5 (5)0-4 (9)35,000 ~55,000I
I-5 (7)I-4 (37)
55,000 ~80,000
II
II-5 (33)II-4 (35)80,000~130,000
III
III-5 (37)
III-4 (42)130,000~230,000
IVIV-5 (41)IV-4 (25)
230,000~430,000V
V-5 (35)
V-4 (12)430000~VI
VI-5 (15)
VI-4 (6)

Industrial structureOver 85% to less than 95%
Less than 85%
Over 55%
Less than 55% Over 50%
Less than 50%
32
100-3 (40)
0-2 (26)
0-1 (32)
0-0 (11)
I-3 (57)
I-2 (37)
I-1 (10)I-0 (4)II-3 (40)II-2 (24)II-1 (1)II-0 (0)III-3 (25)
III-2 (11)III-1 (0)III-0 (0)IV-3 (9)IV-2 (0)IV-1 (1)IV-0 (0)V-3 (7)V-2 (1)V-1 (0)V-0 (0)VI-3 (1)
VI-2 (0)VI-1 (0)VI-0 (0)Towns and villages
Over 80%
Secondary and Tertiary
Over 75% to less than 85% Over 65% to less than 75% Less than 80%
Industrial structure
Tertiary
Over 55% Less than 55%
Population
Type
4
3
2
1
0
~3,5000
0-4 (57)
0-3 (58)
0-2 (132)
0-1 (89)
0-0 (59)
3,500 ~5,500
I
I-4 (32)
I-3 (59)
I-2 (148)
I-1 (93)I-0 (52)
5,500 ~8,000
II
II-4 (58)II-3 (108)II-2 (159)
II-1 (88)II-0 (32)8,000 ~13,000
III
III-4 (141)
III-3 (162)
III-2 (166)
III-1 (73)
III-0 (13)13,000~18,000
IVIV-4 (87)IV-3 (86)IV-2 (74)IV-1 (28)IV-0 (7)18,000~23,000V
V-4 (72)
V-3 (52)
V-2 (23)
V-1 (6)
V-0 (2)
23,000~28,000
VI
VI-4 (49)
VI-3 (30)
VI-2 (12)VI-1 (0)VI-0 (0)28,000~35,000
VII
VII-4 (51)VII-3 (17)VII-2 (5)VII-1 (1)VII-0 (0)35,000~
VIII
VIII-4 (43)
VIII-3 (17)VIII-2 (2)VIII-1 (0)VIII-0 (0)Notes: The number of municipalities is in parentheses. The circled entry in Cities represents Iizuka (III-5). The circled entries in Towns and villages represent the
Hidaka multitask extended association. Hidaka is composed of the following three towns: Niikappu (II-0), Shizunai (VI-2), and Mitsuishi (I-0).
(See Section 3.3)

21

Table 7. Some Examples of Municipalities by TypeCity
III-5 (37)
MuroranIzumisano
EbetsuTondabayashi
ChitoseKawachinagano
TorideMinou
KounosuAshiya
Toda
Sanda
Asaka
Kashihara
FujimiIkoma
Abiko
Hatsukaichi
Kamagaya
IizukaYotsukaido
Chikushino
AkisimaKasugaKoganeiOnojyoKokubunji
Beppu
Higashikurume Ginowan
IseharaUrasoeEbina
Okinawa
Zama
IseharaIkeda

Town and Villege
II-0 (32)I-0 (52)
VI-2 (12)Shinshinotsu Kawakami
Goshoura
Minamikabeya Minamiarima Shizunai
Yuni
Yokoshima
Makubetsu Shikabe
Minamimaki
Ogi
Nakafurano
TensuiTakahata
Niki
Nishiyoshino
Kujyu
Furen
Ogata
Funehiki
Kita
Seranishi
KitauraMemanbetsu Ono
Daigo
Uryu
Touwa
ShiibaKoshimizu
Azuma
Yachiyo
Watsusamu Miyakubo
GokaseKunnetsupu
Higashikushira Nasu
KenbuchiKamiuraSatsumaOnejimeSagaraTomamae Misaki
Nagashima
Niikappu
Erimo
Isen
HaibaraRebun
Akehama
KihokuShihoro
Wadomari
Minamitachi Tokoro
ShirokawaMatsuyama
Hamanaka
Gusukube
Ishiki
Yubetsu
Yasuda
Sata
Rausu
Irabu
SetakaAtsumaGeisei
Ie
Tatsuko
Mitsuishi
Towa
UtatsuToyokoro
HoshinoShouwaInagakiMinamikushiyama
Makioka
Souma
Kitaarima
SamizuSawauchi
Odika
Minabekawa
Jyohouji
Wakamatsu
Nakajima
OshikaKaou
Fukudomi
HamochiSoyou

Note: The number of municipalities is in parentheses.
Iizauka belongs to similar type III-5.
The Hidaka (M) components (Niikappu, Shizunai, and Mitsuishi) are underlined.

22

Figure 2. Ratio of Office Expenditure and Estimated Expenditure by Type
2.50

2.19
2.00

1.50

1.04

Municipal mean
Single mean
Simogotou(S)Shimabara(S)Tosu(S)
Kitou(S)Karatu(S)Kamiishi(S)Ashin(S)
Hamada(S)Othigun(S)Matue(S)Izumoshi(S)Aki(S)
Otashi(S)Kumanogawa(S)Watarai(S)Tagatananbu(S)Yodakubo(S)Niikawa(S)Kaminei(S)Tonami(S)Nakaniikawa(S)Imizu(S)Higashikanbara(S)Osato(S)Niihari(S)Omagari(S)Honjyo(S)Moriokahokubu(S)Ninohe(S)Multi mean
Hioki(M)
Hokushounanbu(M)Nishisonogi(M)Sagatyubu(M)Fukuoka(M)Tyugei(M)Miyoshi(M)Suouoshima(M)Oku(M)
Oki(M)
Unnan(M)NanbuMikaya(M)Kusunoki(M)Konishi(M)Suzuka(M)Kazushi(M)Kinan(M)Kihoku(M)Iga(M)
Titahokubu(M)Takayama-Ono(M)Motosu(M)Ibi(M)
Anpachigun(M)Suwa(M)
Kiso(M)
Kitaarupusu(M)Sakai(M)
Hakusanroku(M)Kuji(M)
Ichinoseki(M)Hiyama(M)Sorachi(M)Hidaka(M)Notes: (M) and (S) are multi and single task extended associations, respectively.

23

1.01
0.93
1.00

0.50

0.00

Table 8. Estimation Results for Per Capita LTC Office Expenditure, 2003

Variablesln (pop)ln (pop) ∙2
Pop.over 40/Pop.
Pop.over 65/Pop.over 40
Rate of LTCI payments
Rate of transferGroupln wage
Municipal Mergers Dummy
Extended Association Dummy(1)-2.087***(0.227)
0.091***(0.010)2.027***(0.337)19.057***(5.811)-0.010(0.011)53.317***(1.920)-0.013***(0.005)0.167(0.195)0.284***(0.099)0.571***(0.171)

E.A.(multi) Dummy(2)-2.087***(0.227)
0.091***(0.010)2.026***(0.336)19.055***(5.812)-0.010(0.011)53.343***(1.913)-0.011**(0.005)0.163(0.195)0.284***(0.099)0.340(0.244)0.835***(0.169)(3)-2.100***(0.230)0.092***(0.011)2.016***(0.334)18.941***(5.836)-0.011(0.011)53.754***(1.888)-0.031***(0.010)0.139(0.193)0.280***(0.100)21.535**(8.396)(4)-2.099***(0.229)0.092***(0.010)2.016***(0.334)18.957***(5.822)-0.011(0.011)53.757***(1.886)-0.026***(0.008)0.142(0.193)0.280***(0.100)20.375**(7.929)E.A.(single) Dummy
20.662***(7.988)
E.A.Dummy∙ln(pop)-4.234*** -4.044***(1.435)(1.347)
E.A.Dummy∙ln(pop)*2
0.185***
0.176***(0.064)(0.060)E.A.Dumm∙pop.over40/pop
5.101**
4.206**(2.126)(2.059)E.A.Dummy∙pop.over65/pop.over40
2.212
4.851
(11.999)(11.135)
E.A.Dummy∙rate of LTCI payments
0.060
0.079*(0.045)(0.043)
E.A.Dummy∙rate of transfer-37.244*** -35.643***(11.080)(10.680)
E.A.Dummy∙group
0.000
0.000
(0.000)(0.000)Constant
8.303***
8.330*** 8.636***8.619***(2.083)(2.083)(2.102)(2.101)
Observations
2,628
2,628
2,628
2,628
R-squared
0.752
0.753
0.756
0.756
Notes: Robust standard errors in parentheses. Asterisks indicate variables whose coefficients are
significant at the 10(∗), 5(∗∗), and 1%(∗∗∗) levels.
24

-3.5

-3

-2.5

-2

-1.5

-1

Figure 3. Per Capita Office Expenditure (Estimated) and ln(pop)

8

10

12
lnpop

Municipal

Extended Association

25

14

Table 9. Estimation Results for Fiscal Policy Interdependence, 2003
Variablesln (pop)(1)(2)-1.523*** -1.523***(0.227)(0.227)ln (pop) ∙2
0.067*** 0.067***(0.010)(0.010)Pop.over 40/Pop
1.298*** 1.297***(0.229)(0.229)Pop.over 65/Pop.over 40
12.287*** 12.293***(3.821)(3.824)Rate of LTCI payments-0.004-0.004(0.007)(0.007)
Rate of transfer
29.554*** 29.584***(2.322)(2.323)Group-0.004-0.003(0.003)(0.003)ln wage-0.180-0.180(0.144)(0.144)
Municipal Mergers Dummy
0.091
0.091
(0.091)(0.091)
Extended Association Dummy
0.331***(0.105)
E.A.(multi) Dummy
0.256*(0.145)
E.A.(single) Dummy
0.417***(0.108)Lagged similar expenditure 2001
0.138*** 0.138***(0.030)(0.030)(Below) Lagged similar expenditure 2001 0.529*** 0.528***(0.031)(0.031)
Constant
8.921*** 8.924***(1.777)(1.777)
Observations
2,626
2,626
R-squared
0.854
0.854
Notes: Robust standard errors in parentheses. Asterisks indicate variables whose
coefficients are significant at the 10(∗), 5(∗∗), and 1%(∗∗∗) levels.

26