The Challenge of Local Government Size

The Challenge of Local Government Size

Theoretical Perspectives, International Experience and Policy Reform

Studies in Fiscal Federalism and State–local Finance series

Edited by Santiago Lago-Peñas and Jorge Martinez-Vazquez

Expert contributors in economics and political science offer a comprehensive breakdown of the issue of local jurisdiction fragmentation and provide recommendations for successful policy reform. Topics discussed include economies of scale, the costs and benefits of voluntary and forced amalgamation programs, the correlation between government size and corruption, privatization, and inter-municipal cooperation. A combination of theory and empirical evidence provides depth and makes this book an invaluable addition to the literature.

Chapter 6: Local government size and efficiency in capital-intensive services: what evidence is there of economies of scale, density and scope?

Germà Bel

Subjects: economics and finance, public sector economics, politics and public policy, public policy

Extract

The analysis of the optimal size of the municipality as an appropriate unit for the provision of services has formed an essential part of the economic literature since the appearance of seminal studies by Oates (1972), Mirrlees (1972) and Dixit (1973). Key studies have subsequently shown that phenomena such as the size and spatial dispersion of the population determine the formation of economies of scale and those of density at the local level (e.g. Deller, 1992; Ladd, 1992; Carruthers and Ulfarsson, 2003; Hortas-Rico and Solé-Ollé, 2010). The existence of economies of scale characterizes many publicly provided goods. However, when these goods are provided by the local government, the problem of the sub-optimal size of this jurisdiction for their provision might arise. Thus, the first question to address, and one of an eminently functional nature, is the optimal geographic scale for this service: does the municipality coincide with what might be determined as the optimal scale of production? In answering this, certain elements acquire particular importance, most significantly the size of the population.

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