Short-term effects of the compact city policy on demographic and long-term care insurance outcomes in small and medium-sized cities: Evidence from the location optimization plan in Japan

Abstract

Small and medium-sized cities (SMCs) play a central role in balanced territorial development, yet they increasingly face shrinkage and rapid aging. Compact-city strategies are designed to sustain services and reduce infrastructure burdens, but causal evidence on short-term social impacts in shrinking SMCs is limited. This study aims to evaluate Japan’s Location Optimization Plan (LOP), a compact-city policy adopted since 2016 that designates attraction zones to guide the location of facilities and residential zones. Using a 2008–2022 panel of 1595 municipalities and a staggered difference-in-differences design, we estimate short-term (within the observed post-adoption window) intent-to-treat associations on total population, inter-municipal net migration, and long-term care insurance (LTCI) certification counts (care support; long-term care). LOP adoption is associated with more negative trends in the total population. We find no robust evidence of an effect on inter-municipal net migration, which does not capture within-city relocation and shows pre-trend concerns. Welfare impacts are heterogeneous and concentrated in small cities: government and educational facilities are associated with higher care-support certifications and suggestive increases in long-term-care certifications. Because LTCI certifications are administrative outcomes, long-term-care certifications indicate pre-trend concerns, and multiple comparisons are involved, these LTCI-related patterns should be interpreted cautiously as exploratory conditional associations. Overall, the findings highlight a sustainability trade-off in shrinking SMCs—facility consolidation aimed at long-run efficiency can be associated with higher short-term LTCI certification caseloads—an administrative outcome that may partly reflect demographic compositional shifts and institutional processes rather than a direct change in individual care capacity—alongside broader social sustainability pressures. These results caution against one-size-fits-all compact-city prescriptions; more selective, context-sensitive guidance and, for the smallest cities, smart-decline principles may offer a more socially resilient pathway.

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