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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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number
2006:27.
Length: 34 pages Date of creation: 19 Oct 2006 Date of revision: Handle: RePEc:hhs:uunewp:2006_027
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Find related papers by JEL classification: D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism R53 - Urban, Rural, and Regional Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock
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