Inter-municipal Cooperation and the provision of local public goods: Economies of scale, fiscal competition or ”zoo” effect?

Inter-municipal communities are supposed to provide local public services more efficiently by exploiting economies of scale and reducing spillover effects among cooperating municipalities. In a diff-in-diff setting that exploits the staggered adoption of cooperation in France, we explore the impact of inter-municipal cooperation on both local public spending and revenues. We first find a sizable increase in local public spending which was not driven by wage bill expansion. Second, by using the decomposition of spending by function, we show that this increase was driven by urbanism policies. Third, we show that a quarter of this effect can be explained by the transfer of two policies: public transit and garbage collection. Overall, we conclude that scale economies, if existent, were clearly dominated by a ”zoo” effect, i.e. the provision of new public services in small and former isolated municipalities.