The fiscal and economic impacts of municipal dissolution: evidence from New York

This paper is the first public finance study to provide a systematic evaluation of municipal dissolution in the context of U.S. Using local government annual financial statistics from 1996 to 2019 in the state of New York, I first employ an event study framework to analyze whether economies of scale are present when a municipal government is dissolved. Then, based on parcel-level property sales data in New York from 2000 to 2018, I combine propensity score matching (PSM) and difference-in-differences (DID) to provide an overall evaluation by investigating how much home buyers value dissolution, as measured by how much they are willing to pay to live in a municipality that has recently dissolved. Overall, I find that the dissolution of a municipal government does lead to short-term changes in revenue composition, but it does not have any significant impact on aggregate government size or house sales prices. The empirical findings suggest that the economies of scale, which is the claimed primary benefit behind centralization, may not be as large as typically expected or, at least, it does not substantially outweigh other values residents appreciate, such as decentralized service provision, policy agenda control, and local culture.