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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 by Finnish municipalities prior to municipal mergers. The merger process creates a temporary common pool problem, which arises because of a delay from the initial merger decision to the actual merger. Using a difference-in-differences strategy, we find large responses to free riding incentives. Consistent with the 'law of 1/n', the stronger the free-riding incentive a municipality faced, the more it increased its per capita debt and used up its cash reserves. These funds were spent mostly on investment and current expenditures. The results are somewhat surprising because the mergers were agreed upon voluntarily.

Suggested Citation

  • Saarimaa, Tuukka & Tukiainen, Janne, 2013. "Common Pool Problems in Voluntary Municipal Mergers," Working Papers 53, VATT Institute for Economic Research.
    • Handle: RePEc:fer:wpaper:53
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    More about this item

    Keywords

    Common pool; Difference-in-differences; Free-riding; Law of 1/n; Municipality mergers; Local public economics; Kunnallistalous; Effectiveness of public services; Julkisten palvelujen vaikuttavuus; D720 - Economic Models of Political Processes: Rent-seeking; Elections; Legislatures; and Voting Behavior; H720 - State and Local Budget and Expenditures; H730 - State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects; H770 - Intergovernmental Relations; Federalism;
    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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