The economic effects of municipal amalgamation and intermunicipal cooperation

This dissertation presents two studies that shed some light on instruments for scaling up local governments - municipal amalgamation and intermunicipal cooperation - and the effects they have on municipal finances. Although the literature offers no clear answer to the question what the optimal scale for the delivery of local public services is, policymakers in general seem to assume that municipal efficiency will benefit from scaling up through amalgamation or cooperation. For this dissertation, the effects of amalgamations in the Netherlands over a period of 15 years have been studied. After a thorough analysis of different variables, it has become clear that there is no significant effect of amalgamations to be observed, neither on municipal finances, nor on municipal efficiency. Policymakers should take this into account: there appear to be no grounds for factoring in any financial or effiency gains from municipal amalgamations.The subject of the second study is the effect of intermunicipal cooperation on efficiency. Using microdata on loans to municipalities and intermunicipal organizations in the Netherlands, a significant difference is found in interest rates being paid for identical loans. Intermunicipal organizations appear to be willing to pay more for the same loans than municipalities, and this can only interpreted as inefficient behaviour for which the cause appears to be reduced monitoring by local government. It is highly plausible that this reduced monitoring induces inefficient behavior by intermunicipal organizations in a broader sense. Knowledge of the existence of this effect provides policymakers with another valuable insight.

Dissertation: http://hdl.handle.net/11370/daf78973-5265-498e-a466-07923b53be74