We study how merging affects the luminosity and the spatial distributions of galaxies. By using a master equation description and a distribution of physical merging cross sections, we find that the evolution of the galaxy luminosity distribution and the spatial counts-in-cells distribution are closely related. They place strong constraints on each other. The observed evolution of the galaxy luminosity function in the Autofib Redshift Survey (Ellis et al.) implies at least a 10% decrease in the galaxy comoving number density at z < 0.7. This significantly affects the evolution of galaxy spatial counts-in-cells distribution. The observed evolution of the galaxy luminosity function also requires a form of ``differential dimming'' for the less luminous galaxies even if galaxy merging drives the evolution. A counts-in-cells analysis for distant galaxies would help clarify the nature of the excess counts of faint-blue galaxies at high redshifts.