Do mergers of large local governments reduce expenditures? Evidence from Germany using the synthetic control method

States merge small and medium sized municipalities to achieve economies of scale. Little is known to which extent mergers of large local governments reduce expenditures. I use the synthetic control method to identify the effect of mergers of county-sized administrations in Germany (districts) on public expenditures. In 2008, the German state of Saxony reduced the number of districts from 22 to 10. Average district population increased substantially from 113,000 to 290,000 inhabitants. I construct a “Synthetic Saxony” serving as counterfactual to real Saxony from districts of ten other German states that did not merge districts for years. The results do neither show that district mergers reduce total expenditures per capita, nor expenditures in main expenditure categories such as social care, education or administration. There seems to be no scale effects in jurisdictions of more than 100,000 inhabitants.