Discussion Paper No.1801

Abstract :
This paper analyzes whether municipal consolidation decreases local public spending, using the local public goods model. First, the conditions under which municipal consolidation achieves efficient allocation are shown. Second, after such efficiency is realized, the allocation is analyzed to see whether it reduces local public expenditure.
If the cost function for local public goods per capita decreases with increase in population, the efficient municipal consolidation will increase local public expenditure because the amount of local public goods provided rises. Some studies expect that local public expenditure under such a cost function would decline. However, this paper shows that one effect of municipal consolidation is to expand local public services and not to reduce local public expenditure.

Keywords : municipal consolidation; local public expenditure; regional population; boundary reform

JEL code: R51, H72, R23, H73