Should French municipalities foster urban densification to reduce their expenditures?

The relationship between population density and the costs of public services remains the subject of controversies due to the wide range of estimated elasticities. This disparity derives essentially from measurement and identification issues. Based on a sample of French municipalities for the period 2003-2015, this paper addresses both considerations and provides further evidence in support of a non-linear relationship between density and public expenditures per capita. First, we measure density differently from the traditional literature and consider two metrics. Second, to tackle endogeneity, we exploit historical records of population, settlements and soil characteristics as an exogenous source of variation. Our preferred specifications imply elasticity estimates equal to -0.13 and 0.12 for per capita current and capital expenditures respectively. Under a cubic B-spline specification, current spending initially decreases with density (up to 20 inhabitants plus jobs per ha) before increasing. In contrast, capital spending features several return points at 20, 30 and 50 inhabitants plus jobs per ha respectively