When Integration Backfires: Examining the Effects of Mandatory Inter-Municipal Cooperation on Local Housing Markets

This paper estimates the causal effect of mandatory inter-municipal cooperation on local welfare, using housing markets as the primary indicator. I study Italy’s 2010 reform, which required small municipalities to jointly manage core administrative functions, and identify its impact through a fuzzy difference-in-discontinuity design. Among municipalities whose cooperation status changed because of the mandate, residential property values fell by 4–6 percent and commercial values by 11–18 percent. These declines stem from deterioration in childcare, policing, street lighting, and waste collection rather than from changes in taxation or housing supply, both of which remain stable. The mandate also reduced population growth and net migration, consistent with residents responding to lower service quality. Compliance was limited — about 29 percent of eligible municipalities participated — and concentrated among those with greater administrative capacity. The results show that mandatory cooperation can erode local amenities and capitalized wealth, suggesting that policymakers should be cautious with uniform consolidation mandates and consider voluntary or capacity-building approaches instead.