The Impact of Amalgamation on the Financial Sustainability of Municipalities in Estonia

Abstract

Even though the literature reveals many different aspects of the relationship between municipal size and financial sustainability, the results are inconsistent. Generally, reference is made to the positive effects of increased municipal size on financial sustainability. But is this really the case? The current article sets out to answer this question by analyzing the impact of municipal mergers on the financial sustainability of municipalities in Estonia. The analysis of the effects of mergers is taken further by examining the levels and dynamics of factors of financial sustainability. Attention focuses on the revenue side of budgets, differentiating between amalgamations resulting in different sizes of municipalities and between amalgamations in urban and rural areas. The study found that the financial impact of mergers varies greatly for different groups of municipalities, and financial indicators themselves are sometimes controversial.