An integrated approach to local governments: A study on vertical collaboration

One of the major hindrances to the functioning of local governments is the lack of sufficient funds. Therefore, fiscal efficiency is the foremost factor that determines the productivity of a local government.

In a new study published first on October 25, 2022, in the journal Public Administration Review, Prof. Yu Noda from the Faculty of Policy Studies at Doshisha University, Japan, examined waste management—a capital-intensive service—in the local municipal areas in Japan as an example of how "vertical" collaboration with higher governments can help local municipalities achieve efficiency in administrative functioning.

Fiscal efficiency in the local governments can be achieved through collaboration, which helps in mitigating risks and gaining benefits. Now traditionally, this collaboration has been fostered with other regional municipalities because of the already existing trust and cooperation engendered over time among such bodies. These are psychological factors that enable smooth functioning of the municipalities. Such a "horizontal" collaboration is fiscally sound because it reduces transaction costs.

Horizontal relationships in the form of contracted services also help to improve service quality. With the foundation of strong trust and ties across municipalities, contracted services ensure greater benefits. They enable a smooth, organic integration with low political costs. Although it dilutes autonomy of the local government to some extent in terms of managing services in the region, it can still hold the reins of regional governance by deciding the manner of integration with such services.

In addition to the horizontal collaborations, this study explains the importance of another aspect of this integration—a "vertical" collaboration with the higher governments.

"Democracy is based on the autonomous policy-making of local governments, but for fiscal efficiency, the appropriate involvement of higher-level government is rather crucial. As taxpayers pay taxes to both basic and higher levels of government, we need to reassess and monitor the division of roles between them," says Prof. Noda.

This vertical collaboration was found to accrue more benefits for the municipalities. Even though the transaction costs were found to increase, the overall benefits arising out of this collaboration more than made up for the rise in transaction costs.

It was believed earlier that municipal cooperation alone would be sufficient to overcome fiscal problems. However, this study demonstrated that both vertical and horizontal relationships are required for the better functioning of local governments. The study also found that establishment of special district governments improved the efficiency of municipalities by enforcing fiscal distribution. But, collaborative benefits, including such efficiency, were higher when there were better horizontal ties within the regional government.

While the horizontal collaborations increased the municipal capacity to solve regional issues, vertical collaboration led to a more efficient and integrated approach. Horizontal collaborations can only help to a certain extent. When severe financial difficulties strike, help from the higher government becomes necessary.

"In 5 or 10 years' time, municipalities may be facing more financial difficulties, and in such cases, not only inter-municipal cooperation, but also appropriate commitment from higher level governments such as prefectures and the national government could increase the financial efficiency of the municipalities," explains Prof. Noda.

This study offers novel insights into the importance of establishing vertical relationships, an area that has thus far largely been ignored. This research will pave the way to a sounder-working ecosystem of local governments in the future through an integrated framework.