Jurisdiction Size and Local Government Policy Expenditure: Assessing the Effect of Municipal Amalgamation

Abstract

Across the developed world, the last 50 years have seen a dramatic wave of municipal mergers, often motivated by a quest for economies of scale. Re-examining the theoretical arguments invoked to justify these reforms, we find that, in fact, there is no compelling reason to expect them to yield net gains. Potential savings in, for example, administrative costs are likely to be offset by opposite effects for other domains. Past attempts at empirical assessment have been bedeviled by endogeneity—which municipalities amalgamate is typically nonrandom—creating a danger of bias. We exploit the particular characteristics of a recent Danish reform to provide more credible difference-in-differences estimates of the effect of mergers. The result turns out to be null: cost savings in some areas were offset by deterioration in others, while for most public services jurisdiction size did not matter at all. Given significant transition costs, the finding raises questions about the rationale behind a global movement that has already restructured local government on almost all continents.

Intermunicipal cooperation, public spending and service levels

“…This outcome is similar to that of studies of the budgetary effects of municipal amalgamation. Recent studies in the Netherlands (Allers and Geertsema 2016) and Denmark (Blom-Hansen et al 2016) found no effect of amalgamation on total municipal spending. Earlier studies found either higher or lower spending after amalgamation (see Allers and Geertsema 2016, for references).…”

“…Amalgamation does not necessarily change the operating scale of the organisational units that produce public services (Blom-Hansen et al 2016). It does not automatically result in, e.g., bigger schools or bigger medical centres.…”

Administrative reorganization as a signal: Bounded rationality, agency merger, and salience of policy issues

“…However, research on the following several key points is limited. First, many studies have focused on the effect of mergers among public bureaus performing the same set of services and functions, with the most common subject being amalgamation of multiple municipalities (e.g., Blom-Hansen et al, 2016;Feiock & Carr, 2000;Hanes, 2015;Holzer et al, 2009;Kjaer, Hjelmar, & Leth Olsen, 2010;Leland & Thurmaier, 2005;Steiner & Kaiser, 2017;Suzuki & Sakuwa, 2016). Insights from these studies, however, may have limited value in understanding mergers among public organizations performing different sets of services or functions (Hult, 1987).…”

Cities and their hinterlands 10 years on: Local and regional governance still under debate

“…Where existing governance arrangements are more resistant to change this type of 'upward' rescaling appears to have involved less entrenched targets: the establishment of a smaller set of merged 'super-regions' in France in 2016 is a case in point (Anon., 2016). The architects of such mergers or other forms of rescaling generally claim that they will perforce bring public expenditure savings in their train, although this is beginning to be disputed, as shown in recent work on Denmark by Blom-Hansen et al (2016).…”