Do Municipal Mergers Improve Fiscal Outcomes?

Abstract

Improved fiscal management is a frequent justification for promoting boundary consolidations. However, whether or not this is actually the case is rarely placed under rigorous empirical scrutiny. Hence, this article investigates if fiscal outcomes are improved when municipalities are merged. The basic argument is that the conceptualisation of fiscal management in political science is often too narrow as it focuses on the budget and pays hardly any attention to balances in the final accounts and debts – elements of management which are central to policy making. On this background, the causal relationship between municipal mergers and fiscal outcomes is analysed. Measured on the balance between revenues and expenses, liquid assets and debts, municipal mergers improve the fiscal outcomes of the municipalities in a five‐year perspective, although the pre‐reform effects tend to be negative. For liquidity and debt, however, the improvement only entails re‐establishing the levels prior to the reform. The testing ground is the recent mergers of Danish municipalities, which, it is argued, constitute a quasi‐experiment. This forms the basis of a Difference‐in‐Difference design, allowing the alleviation of endogeneity problems and enabling causal inference. The analysis is based on administrative data from the Danish municipalities in the period 2003–11.

Free‐rider behaviour under voluntary amalgamation: The case of setting the long‐term care insurance premium in Japan

“…However, studies that have examined whether municipality amalgamation really achieves economies of scale have presented mixed results. For example, while Reingewertz (), Blom‐Hansen et al (), Hansen et al () and Hanes (), confirmed the presence of the scale effect at the municipality level after amalgamation, Bish (), Byrnes and Dollery (), Steiner (), and Allers and Geertsema () did not.…”

The Effects of Local Government Amalgamation on Public Spending, Taxation, and Service Levels: Evidence From 15 Years of Municipal Consolidation

“…Existing organizations usually have well‐established ways of doing things, which might have become outdated. Amalgamation forces organizations to reconsider procedures and operations, possibly resulting in the adoption of more efficiency practices (Hansen et al., ).…”

Do mergers of large local governments reduce expenditures? – Evidence from Germany using the synthetic control method

“…The empirical evidence however is at least mixed. Reingewertz (2012), Blom-Hansen et al (2014), and Hansen et al (2014) document that expenditures of merged municipalities in Israel and Denmark decreased. By contrast, Lüchinger and Stutzer (2002) and Fritz (2013) show that merged municipalities in Switzerland and South Germany increased expenditures.…”