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Merged Municipalities, Higher Debt: On Free-riding and the Common Pool Problem in Politics

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  • Jordahl, Henrik

    ()
    (Research Institute of Industrial Economics)

  • Liang, Che-Yuan

    ()
    (Uppsala University)

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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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 679.

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Length: 34 pages
Date of creation: 22 Nov 2006
Date of revision:
Publication status: Published in Public Choice, 2010, pages 157-172.
Handle: RePEc:hhs:iuiwop:0679

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Keywords: Common Pool; Municipal Amalgamation; Local Governments;

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  1. 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.
  2. 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.
  3. 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.
  4. Bradbury, John Charles & Stephenson, E Frank, 2003. " Local Government Structure and Public Expenditures," Public Choice, Springer, vol. 115(1-2), pages 185-98, April.
  5. Bolton, Patrick & Roland, Gérard, 1995. "The Break up of Nations: A Political Economy Analysis," CEPR Discussion Papers 1225, C.E.P.R. Discussion Papers.
  6. 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).
  7. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  8. Gilligan, Thomas W & Matsusaka, John G, 1995. "Deviations from Constituent Interests: The Role of Legislative Structure and Political Parties in the States," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 383-401, July.
  9. 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.
  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. Crain, W Mark, 1999. "Districts, Diversity, and Fiscal Biases: Evidence from the American States," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 675-98, October.
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Cited by:
  1. 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).
  2. Niclas Berggren, 2012. "The Calculus of Consent: some Swedish connections," Public Choice, Springer, vol. 152(3), pages 313-321, September.
  3. 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.
  4. 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.
  5. 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.
  6. 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).
  7. 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.
  8. Aggeborn, Linuz, 2013. "Voter Turnout and the Size of Government," Working Paper Series, Center for Fiscal Studies 2013:14, Uppsala University, Department of Economics.
  9. Ohlsson, Henry, 2009. "The legacy of the Swedish gift and inheritance tax, 1884-2004," Working Paper Series, Center for Fiscal Studies 2009:13, Uppsala University, Department of Economics.
  10. Hirota, Haruaki & Yunoue, Hideo, 2011. "Municipal mergers and special provisions of local council members in Japan," MPRA Paper 37485, University Library of Munich, Germany.
  11. 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.
  12. 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).
  13. 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.
  14. Katsuyoshi Nakazawa & Tomohisa Miyashita, 2013. "Municipality amalgamation in Japan: A survival analysis of the timings of the amalgamation process," MAGKS Papers on Economics 201338, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  15. Janne Tukiainen & Tuukka Saarimaa, 2013. "Common Pool Problems in Voluntary Municipal Mergers," Working Papers 53, Government Institute for Economic Research Finland (VATT).
  16. Aggeborn, Linuz, 2013. "Voter Turnout and the Size of Government," Working Paper Series 2013:20, Uppsala University, Department of Economics.

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