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
Chapter 11: Does local government size matter? Privatization and hybrid systems of local service delivery
The problem of suboptimal local government size stems from historical circumstance (the evolution of local government structure) and the current nature of vertical inter-governmental relations. Small size itself does not have to be a problem if the inter-governmental structure accounts for differences in scale and capacity. Many European countries and the US face a local government sector dominated by many small municipalities. In the US, there are over 39,000 units of multi-purpose local government (US Bureau of the Census 2007). The challenge of suboptimal local government size raises two concerns: (1) capacity – small size can lead to inadequate financial or managerial capacity, and (2) fragmentation can undermine efficiency (due to lack of economies of scale) and prevent coordination necessary for regional economic competitiveness and environmental management. It is these two concerns, capacity and fragmentation, and their implications for rural government viability on the one hand and metropolitan regional coordination on the other hand, that drive scholarly and practical policy interest in the question of suboptimal government size.
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