Municipal amalgamation reforms are a policy being put to use in most developed countries. The basic rationale for most of these reforms is taking advantage of economies of scale in the municipal provision of public services. However, contrary to conventional wisdom of public officials, the related empirical literature, which relies mostly on descriptive evidence, finds almost no benefits arising from an amalgamation. The purpose of this paper is to present empirical evidence for the fiscal outcomes of municipal amalgamations based on the Difference-in-Differences methodology. The paper is using an extensive panel data of municipalities in Israel for the years 1999-2007 in order to analyze the Israeli amalgamation reform of 2003. The results indicate that the amalgamations resulted in a decrease of about 9% in municipal expenditures, and are robust to the possibility of selection bias. I find no evidence of a decrease in the level of services provided to the residents of the amalgamated municipalities. The results suggest that municipal amalgamations do bring economies of scale into practice.
Bibliographical noteFunding Information:
I would like to thank Esteban Klor for help and guidance. I would also like to thank Adi Shani, Amnon Shreiber, Avi Ben-Basat, Avraham Ebenstein, Daniel Spiro, Eran Razin, Herman Stekler, Michael Beenstock, Momi Dahan, Oren Levintal, Ronny Freier, Sarit Weisbord and Saul Lach for their comments and suggestions. For financial support I thank the Floersheimer Institute.
- Local governments
- Municipal amalgamations
- Urban and regional finance
ASJC Scopus subject areas
- Economics and Econometrics
- Urban Studies