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On the Relationship between Authority Size and the Costs of Providing Local Services: Lessons for the Design of Intergovernmental Transfers in Spain

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Author Info

  • Albert Solé-Ollé

    (Universitat de Barcelona and IEB (Institut d’Economia de Barcelona))

  • Núria Bosch

    (Universitat de Barcelona and IEB (Institut d’Economia de Barcelona))

Abstract

Unconditional transfers to local governments in Spain are distributed mainly according to weighted population, with weights rising with population size to account for the higher expenditure responsibilities and needs of bigger municipalities. The authors evaluate the appropriateness of these weights and estimate an expenditure equation with a data set covering more than 2,500 Spanish municipalities in 1999, and the use of a piecewise linear function accounts for the possible nonlinear relationship between costs and population size. The results identify important scale economies for the smallest local authorities and growing per capita costs for higher population sizes. However, the growth in per capita costs is much lower than the one implicit in the weights used in the distribution of transfers.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 33 (2005)
Issue (Month): 3 (May)
Pages: 343-384

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Handle: RePEc:sae:pubfin:v:33:y:2005:i:3:p:343-384

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Keywords: local governments; intergovernmental transfers; scale economies;

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Cited by:
  1. Albert Solé Ollé, 2005. "Expenditure spillovers and fiscal interactions: Empirical evidence from local governments in Spain," Working Papers 2005/3, Institut d'Economia de Barcelona (IEB).
  2. Albert Solé-Ollé & Pilar Sorribas-Navarro, 2006. "The effects of partisan alignment on the allocation of intergovernmental transfers. Differences-in-differences estimates for Spain," Working Papers 2006-09, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  3. Núria Bosch & Marta Espasa & Daniel Montolio, 2013. "Should large Spanish municipalities be financially compensated? Costs and benefits of being a capital/central municipality," Working Papers 2013/6, Institut d'Economia de Barcelona (IEB).
  4. Buettner, Thiess & Holm-Hadulla, Fédéric, 2013. "City size and the demand for local public goods," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 16-21.
  5. Reingewertz, Yaniv, 2012. "Do municipal amalgamations work? Evidence from municipalities in Israel," Journal of Urban Economics, Elsevier, vol. 72(2), pages 240-251.

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