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Merged municipalities, higher debt: on free-riding and the common pool problem in politics

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  • Henrik Jordahl

    ()

  • Che-Yuan Liang

    ()

Abstract

We use the 1952 Swedish municipal amalgamation reform to study free-riding and the common pool problem in politics. We expect municipalities that were affected by the reform to increase their debt in anticipation of a merger, and this effect to be larger if they were merged with many other populous municipalities (i.e. facing a large common pool). We use ordinary least squares and matching on the complete cross section of rural municipalities for the period 1947-1951, fixed effects when exploiting the panel features, as well as a geographical instrumental variables strategy. We find an average treatment effect close to the amount that the average merged municipality increased its debt with during this period, which corresponds to 2.8 percent of average income or 63 percent of the average increase in income. However, we do not find larger increases in municipalities that were part of a larger common pool.

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File URL: http://hdl.handle.net/10.1007/s11127-009-9495-y
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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 143 (2010)
Issue (Month): 1 (April)
Pages: 157-172

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Handle: RePEc:kap:pubcho:v:143:y:2010:i:1:p:157-172

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Web page: http://www.springerlink.com/link.asp?id=100332

Related research

Keywords: Common pool; Free-riding; Local government amalgamation; Difference-in-differences; D72; H73; H74; H77; R53;

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References

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  1. Bolton, Patrick & Roland, Gerard, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1057-90, November.
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  4. Per Pettersson-Lidbom, 2004. "Does the Size of the Legislature Affect the Size of Government? Evidence from Two Natural Experiments," Discussion Papers 350, Government Institute for Economic Research Finland (VATT).
  5. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  6. Bradbury, John Charles & Crain, W. Mark, 2001. "Legislative organization and government spending: cross-country evidence," Journal of Public Economics, Elsevier, vol. 82(3), pages 309-325, December.
  7. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  8. Tyrefors Hinnerich, Björn, 2009. "Do merging local governments free ride on their counterparts when facing boundary reform?," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 721-728, June.
  9. Bradbury, John Charles & Stephenson, E Frank, 2003. " Local Government Structure and Public Expenditures," Public Choice, Springer, vol. 115(1-2), pages 185-98, April.
  10. Gilligan, Thomas W. & Matsusaka, John G., 2001. "Fiscal Policy, Legislature Size, and Political Parties: Evidence from State and Local Governments in the First Half of the 20th Century," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 57-82, March.
  11. Tyrefors, Björn, 2006. "Do Politicians Free-ride? - an empirical test of the common pool model," Working Paper Series in Economics and Finance 626, Stockholm School of Economics, revised 19 Sep 2006.
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Cited by:
  1. Ohlsson, Henry, 2011. "The legacy of the Swedish gift and inheritance tax, 1884–2004," European Review of Economic History, Cambridge University Press, vol. 15(03), pages 539-569, December.
  2. Hirota, Haruaki & Yunoue, Hideo, 2011. "Municipal mergers and special provisions of local council members in Japan," MPRA Paper 37485, University Library of Munich, Germany.
  3. Blesse, Sebastian & Baskaran, Thushyanthan, 2013. "Do municipal mergers result in scale economies? Evidence from a German federal state," Center for European, Governance and Economic Development Research Discussion Papers 176, University of Goettingen, Department of Economics.
  4. S�ren Blomquist & Vidar Christiansen & Luca Micheletto, 2010. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 1-27, May.
  5. Katsuyoshi Nakazawa, 2013. "Amalgamation, free-ride behavior, and regulation," MAGKS Papers on Economics 201339, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  6. Sune Welling Hansen, 2014. "Common pool size and project size: an empirical test on expenditures using Danish municipal mergers," Public Choice, Springer, vol. 159(1), pages 3-21, April.
  7. Aggeborn, Linuz, 2013. "Voter Turnout and the Size of Government," Working Paper Series 2013:20, Uppsala University, Department of Economics.
  8. Libman, A., 2011. "Integration of the Regions: Economic and Economic-Political Effects," Journal of the New Economic Association, New Economic Association, issue 10, pages 155-158.
  9. Aggeborn, Linuz, 2013. "Voter Turnout and the Size of Government," Working Paper Series, Center for Fiscal Studies 2013:14, Uppsala University, Department of Economics.
  10. Janne Tukiainen & Tuukka Saarimaa, 2013. "Common Pool Problems in Voluntary Municipal Mergers," Working Papers 53, Government Institute for Economic Research Finland (VATT).
  11. Peter Bönisch & Peter Haug & A. Illy & L. Schreier, 2011. "Municipality Size and Efficiency of Local Public Services: Does Size Matter?," IWH Discussion Papers 18, Halle Institute for Economic Research.
  12. Katsuyoshi Nakazawa, 2013. "Municipality amalgamation and free-ride behavior: Eligibility assessments for long-term care insurance in Japan," MAGKS Papers on Economics 201340, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  13. Katsuyoshi Nakazawa & Tomohisa Miyashita, 2013. "Does the method adopted for distribution of services by amalgamating municipalities affect expenditure after amalgamation? Evidence from Japan," MAGKS Papers on Economics 201315, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  14. Niclas Berggren, 2012. "The Calculus of Consent: some Swedish connections," Public Choice, Springer, vol. 152(3), pages 313-321, September.
  15. Tyrefors Hinnerich, Björn, 2009. "Do merging local governments free ride on their counterparts when facing boundary reform?," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 721-728, June.

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