Do municipal mergers improve fiscal outcomes?

TY - JOUR

T1 - Do municipal mergers improve fiscal outcomes?

AU - Hansen, Sune Welling

AU - Houlberg, Kurt

AU - Pedersen, Lene Holm

PY - 2014/1/1

Y1 - 2014/1/1

N2 - Improved fiscal management is a frequent justification for promoting boundary consolidations. However, whether or not this is actually the case is rarely placed under rigorous empirical scrutiny. Hence, this article investigates if fiscal outcomes are improved when municipalities are merged. The basic argument is that the conceptualisation of fiscal management in political science is often too narrow as it focuses on the budget and pays hardly any attention to balances in the final accounts and debts - elements of management which are central to policy making. On this background, the causal relationship between municipal mergers and fiscal outcomes is analysed. Measured on the balance between revenues and expenses, liquid assets and debts, municipal mergers improve the fiscal outcomes of the municipalities in a five-year perspective, although the pre-reform effects tend to be negative. For liquidity and debt, however, the improvement only entails re-establishing the levels prior to the reform. The testing ground is the recent mergers of Danish municipalities, which, it is argued, constitute a quasi-experiment. This forms the basis of a Difference-in-Difference design, allowing the alleviation of endogeneity problems and enabling causal inference. The analysis is based on administrative data from the Danish municipalities in the period 2003-11.

AB - Improved fiscal management is a frequent justification for promoting boundary consolidations. However, whether or not this is actually the case is rarely placed under rigorous empirical scrutiny. Hence, this article investigates if fiscal outcomes are improved when municipalities are merged. The basic argument is that the conceptualisation of fiscal management in political science is often too narrow as it focuses on the budget and pays hardly any attention to balances in the final accounts and debts - elements of management which are central to policy making. On this background, the causal relationship between municipal mergers and fiscal outcomes is analysed. Measured on the balance between revenues and expenses, liquid assets and debts, municipal mergers improve the fiscal outcomes of the municipalities in a five-year perspective, although the pre-reform effects tend to be negative. For liquidity and debt, however, the improvement only entails re-establishing the levels prior to the reform. The testing ground is the recent mergers of Danish municipalities, which, it is argued, constitute a quasi-experiment. This forms the basis of a Difference-in-Difference design, allowing the alleviation of endogeneity problems and enabling causal inference. The analysis is based on administrative data from the Danish municipalities in the period 2003-11.

UR - http://www.scopus.com/inward/record.url?scp=84899989017&partnerID=8YFLogxK

U2 - 10.1111/1467-9477.12020

DO - 10.1111/1467-9477.12020

M3 - Journal article

AN - SCOPUS:84899989017

SN - 0080-6757

VL - 37

SP - 196

EP - 214

JO - Scandinavian Political Studies

JF - Scandinavian Political Studies

IS - 2

ER -