What Happens When Municipalities Run Corporations? Empirical Evidence From 290 Swedish Municipalities

Abstract

Across the globe, local governments have increasingly begun to rely on municipally owned corporations (MOCs) to provide public services, mounting to what scholars describe as a burgeoning corporatization in local government. Some studies have described this development as a rational response to financial stress and contemporary austerity challenges, and emphasise the cost-efficiency of MOCs (the optimistic view). However, several scholars have identified problems associated MOCs relating to weak steering and supervision, lack of accountability, and heightened corruption risks (the sceptical view). Hitherto, no studies have tested these diametrically opposing expectations on the effects MOCs in the one and same analysis. This paper addresses the competing views by studying Sweden, a country with a dramatic growth in the number of MOCs since the 1970s. We examine the association between the number of MOCs, citizen satisfaction with local government, local tax rates and a survey-based corruption measure for all 290 Swedish municipalities. Ultimately questioning the 'optimistic view', the results indicate that municipalities that rely heavily on MOCs in service delivery have higher taxes, not more satisfied citizens, and are associated with higher corruption levels.

The Impact of Budget Financing on the Municipal-Owned Enterprises Performance: Case of Kyiv City

“…Swedish authors A. Bergh, G. Erlingsson, A. Gustafsson & E. Wittberg [21] noted that during the last 40 years, the number of Swedish MOEs increased dramatically and emphasized that this growth has impacted negatively on the conditions for accountability in Swedish local government, mainly through the mixing of the roles of agent and principal following the agency theory. The following paper of these authors [22] gives empirical evidence that local governments with MOCs prone to setting higher taxes are relatively more associated with corruption problems. It should be emphasized that the Swedish issue is also characteristic of Ukraine, where certain politicians have some agency interests in municipal enterprises, although following their legal positions, they must act as principals concerning these enterprises.…”