Exit, voice, and loyalty under municipal decline: A difference-in-differences analysis in Japan

Drawing on Albert Hirschman's Exit, Voice, and Loyalty, this study aims to reveal citizens' response mechanisms to the decline of municipality caused by municipal management failure. Using the case of the Japanese town Ohwani in fiscal crisis, this study examines the effects of fiscal reform, which involve tax increases, service cuts, and political conflicts, on citizens' exit intention and voice activities. For this purpose, this study makes a quasi-experimental framework that contrasts Ohwani to Inakadate, a control village not under fiscal reform which has similar socio-demographic features. The estimation approach is a difference-in-differences design with a time difference enabled by a careful retrospective measurement. Data were collected from 600 randomly sampled citizens of Ohwani and Inakadate with a response rate of 45%. This study finds that citizens under fiscal reform are more likely to consider exit, while the level of citizens' voice activities is unaffected by fiscal reform. In addition, social capital factors show a loyalty function that encourages voice activities as the covariates, though those associations with exit intention are weak. This study provides initial evidence for citizens' response mechanisms to municipal decline and identifies keys to successful recuperation from decline.