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Do municipal mergers reduce costs? Evidence from a German federal state

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  • Blesse, Sebastian
  • Baskaran, Thushyanthan

Abstract

We study the fiscal consequences of municipal mergers by making use of a large-scale merger reform in the German federal state of Brandenburg. This reform, which was implemented from 2001 to 2003, led to a substantial reduction in the number of municipalities. Individual mergers were heterogeneous across a number of dimensions, which allows us to contribute to the literature by exploring the consequences of different types of mergers within the same institutional setting. Focusing in particular on the distinction between compulsory and (semi-)voluntary mergers, we implement a difference-in-difference design with panel data from 1995–2010 at the level of post-merger municipalities. We find significant reductions in (administrative) expenditures after compulsory mergers. Voluntary mergers, on the other hand, have no effect on expenditures. We also show that the effects of voluntary and compulsory mergers vary according to further (secondary) characteristics of a merger.

Suggested Citation

  • Blesse, Sebastian & Baskaran, Thushyanthan, 2016. "Do municipal mergers reduce costs? Evidence from a German federal state," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 54-74.
    • Handle: RePEc:eee:regeco:v:59:y:2016:i:c:p:54-74
    DOI: 10.1016/j.regsciurbeco.2016.04.003
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    More about this item

    Keywords

    Municipal mergers; Economies of scale; Voluntary and compulsory mergers;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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