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Local governments in the wake of demographic change: evidence from German municipalities

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  • Geys, Benny
  • Heinemann, Friedrich
  • Kalb, Alexander

Abstract

German municipalities are expected to suffer from intense demographic changes in the upcoming decades; not only in the form of population losses, but also through a changing demographic structure (i.e. less children and adolescents, more elderly, higher dependency ratio, and so on). We assess local governments’ vulnerability to the fiscal consequences of these demographic transformations (using a sample of 1021 municipalities in the state of Baden-Württemberg) by determining the elasticity of local government cost functions to municipalities’ demographic characteristics. Our findings indicate that smaller municipalities are especially vulnerable to increasing cost pressures following most of the currently predicted demographic changes. In the absence of increased higher-level government support (e.g. through the fiscal equalization scheme), these findings would support a case for boundary reviews or more extensive inter-communal cooperation. -- Deutsche Stadtverwaltungen werden erwartungsgemäß in den kommenden Jahrzehnten unter einem demographischen Wandel zu leiden haben, welcher nicht nur in Form eines allgemeinen Bevölkerungsrückgangs, sondern auch durch einen Wandel in der demographischen Struktur (d.h. veränderte Altersstruktur durch weniger Junge und mehr Alte, höhere Abhängigkeitsrate usw.) zum Ausdruck kommt. Wir untersuchen die diesbezügliche Anfälligkeit von dezentralen Regierungen (zugrunde liegt eine Stichprobe von 1021 Stadt- und Gemeindeverwaltungen im Land Baden-Württemberg), indem wir die Elastizität der Kostenfunktionen bezüglich der demographischen Charakteristika der jeweiligen Stadt- und Gemeindeverwaltungen bestimmen. Unsere Ergebnisse deuten darauf hin, dass gerade kleinere Gemeinden unter dem steigenden Kostendruck leiden, der mit den meisten vorhergesagten demographischen Veränderungen einhergeht. Wenn keine übergeordnete Regierungsebene diese kleineren Verwaltungsgebiete unterstützt (z.B. durch ein Finanzausgleichsystem), dann unterstützen unsere Ergebnisse eine kritische Überprüfung von fiskalischen Grenzen bzw. der Ausweitung der inter-kommunalen Kooperation.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number SP II 2008-19.

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Date of creation: 2008
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Handle: RePEc:zbw:wzbmpg:spii200819

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Keywords: Demographic change; local government expenditures; cost elasticity; economies of scale; rolling regression; German municipalities;

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References

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  1. John Ashworth & Benny Geys & Bruno Heyndels, 2005. "Government Weakness and Local Public Debt Development in Flemish Municipalities," International Tax and Public Finance, Springer, vol. 12(4), pages 395-422, August.
  2. Tim Callen & Warwick J. McKibbin & Nicoletta Batini, 2006. "The Global Impact of Demographic Change," IMF Working Papers 06/9, International Monetary Fund.
  3. David E. Bloom & David Canning, 2004. "Global demographic change : dimensions and economic significance," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 9-56.
  4. Joel Mokyr, 2004. "Commentary : global demographic change : dimensions and economic significance," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 57-71.
  5. Lawrence H. Summers & Chair, 2004. "General discussion : global demographic change : dimensions and economic significance," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 73-81.
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Cited by:
  1. Cosmin Eugen ENACHE, 2012. "The efficiency of expenditure-related redistributive policies in the European countries," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 5(18), pages 380-394.
  2. Hagist, Christian & Vatter, Johannes, 2009. "Measuring fiscal sustainability on the municipal level: A German case study," FZG Discussion Papers 35, Research Center for Generational Contracts (FZG), University of Freiburg.
  3. De Witte, Kristof & Geys, Benny, 2013. "Citizen coproduction and efficient public good provision: Theory and evidence from local public libraries," European Journal of Operational Research, Elsevier, vol. 224(3), pages 592-602.
  4. 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.
  5. Hendrik P. Van Dalen & Kène Henkens, 2011. "Who fears and who welcomes population decline?," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 25(13), pages 437-464, August.

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