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Common pool problems in voluntary municipal mergers

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  • Saarimaa, Tuukka
  • Tukiainen, Janne

Abstract

We analyze free-riding behavior of Finnish municipalities prior to voluntary municipal mergers. The merger process creates a temporary common pool problem, because of a delay from the initial decision to the actual merger during which municipalities stay autonomous. Using a difference-in-differences strategy, we find that the stronger free-riding incentive a municipality faced the more it increased its debt and spent its cash reserves. These funds were spent mostly on investments and current expenditures.

Suggested Citation

  • Saarimaa, Tuukka & Tukiainen, Janne, 2015. "Common pool problems in voluntary municipal mergers," European Journal of Political Economy, Elsevier, vol. 38(C), pages 140-152.
  • Handle: RePEc:eee:poleco:v:38:y:2015:i:c:p:140-152
    DOI: 10.1016/j.ejpoleco.2015.02.006
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    More about this item

    Keywords

    Common pool; Difference-in-differences; Law of 1/n; Municipality mergers;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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