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Factors Determining Municipal Spending Differences in Latvia

Author

Listed:
  • Karlis Vilerts

    (Bank of Latvia)

  • Klavs Zutis

    (Bank of Latvia)

  • Konstantins Benkovskis

    (Bank of Latvia)

Abstract

In recent years, local government spending has drawn a lot of attention from policy makers and researchers alike. Scientific literature does not give a clear preference either to centralisation or decentralisation of the provision of public services. The present paper employs econometric methods to obtain evidence pointing to a negative correlation between the size of Latvia's municipalities (novads) in terms of population and municipal spending per capita. Namely, the smaller the municipality, the higher the per capita costs of providing local government services. This is an especially important conclusion, considering Latvia's demographical trends resulting in a particularly notable reduction in the population of small municipalities. We have estimated that, given the declining population, municipalities will be unable to continue fulfilling their functions at the current scope without additional financing. Estimates also suggest that concentration of local government services in administrative territorial units that are larger in terms of population could result in significant savings that could be spent to improve either the supply or quality of services provided by municipalities.

Suggested Citation

  • Karlis Vilerts & Klavs Zutis & Konstantins Benkovskis, 2019. "Factors Determining Municipal Spending Differences in Latvia," Discussion Papers 2019/01, Latvijas Banka.
  • Handle: RePEc:ltv:dpaper:201901
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    File URL: https://datnes.latvijasbanka.lv/papers/discussion/DP_1_2019_en.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    municipalities; local government spending; number of population; demographic trends;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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