Local Election and Water Tariff Revision: Evidence from Japan

Water supply services face significant challenges in developing and industrialized countries. Water tariffs are an effective economic instrument for addressing these issues. However, the presence of diverse and often conflicting policy objectives regarding water tariffs can undermine their effectiveness. This study lays the groundwork for examining effective governance in implementing water tariff policies. Specifically, this study investigates how electoral cycles influence water tariff revisions, explores the motivations behind political intervention, and identifies the conditions that affect the extent of water tariff adjustments. This study’s findings reveal that water tariff revisions are less likely to occur during mayoral elections and in the years preceding local assembly elections. Although higher existing tariff rates and worsening financial conditions of water utilities increase the likelihood of tariff revisions, these effects are amplified in large cities. While tariff adjustments tend to occur in the year following a previous adjustment, the cumulative number of adjustments tends to suppress future adjustments. This study suggests that water tariffs can be determined by balancing political considerations and rational, financially driven management decisions. This study offers new empirical evidence on the impact of election cycles on water tariff policy, distinguishing itself by using Japanese data to disentangle and verify the separate effects of mayoral and local assembly elections. Furthermore, it contributes to the literature by shedding light on the political motivations behind interventions in water tariff setting, an area that has been difficult to quantify and often overlooked in previous studies.