The Economic and Political Impacts of Top-Down Territorial Reforms: The Case of Sub-City Governments

Abstract

The main objective of this manuscript is to test two competing hypotheses from the regionalism/localism literature regarding local government size. The Leviathan hypothesis argues that fragmentation induces lower spending through more decentralised government structures which are smaller relative to the size of the local economy. This argument is in sharp opposition with the supporters of regionalism who argue that territorial centralisation can produce economies of scale and significant cost savings, reduce overlaps and promote a more efficient local government. These competing hypotheses derived from the literature are tested using data collected from all 278 local governments of continental Portugal. We measure local government size as both per capita total expenditures and per capita grant transfers to sub-city governments and territorial fragmentation as the number of sub-city governments per 1,000 individuals. Our findings indicate that higher levels of sub-city fragmentation lead to increased municipal government spending and transfers to sub-city governments, thus suggesting that the amalgamation of sub-city governments required by the Memorandum of Understanding (MoU) signed in 2011 by the Portuguese government, the International Monetary Fund, the European Union and the European Central Bank and mandated by national legislation has the potential to induce cost savings and to improve financial sustainability.

Key Words:

• Territorial reforms
• local government size
• fragmentation
• amalgamation
• regionalism

Acknowledgement

The authors would like to thank Catarina Magalhães of the University of Minho for general research assistance and her work in compiling the data set used in the analyses.

Notes

1. Portuguese municipalities are divided into sub-city governments called civil parishes. Portugal has a total of 308 municipalities and 4,259 parishes. This manuscript employs the terms ‘sub-city government’ and ‘parish government’ interchangeably.

2. The analyses employ capital expenditures and capital grants to parishes because the capital budget is better able to capture the choices related to investment in public infrastructure (and pork-barrel policies) in the Portuguese setting.

3. Following one reviewer’s suggestion we tested our models including two fragmentation variables: The number of parish governments per 1,000 residents and the total number of parish governments by jurisdiction. The variable ‘parish governments by jurisdiction’ is not statistically significant in any of the specifications and does not affect the coefficients of the original fragmentation variable (parishes per 1,000 residents) in a significant way. As a result it was dropped from the final estimations included in the body of paper. The results of these estimations are available from the authors upon request.

Additional information

Funding

The Portuguese Science and Technology Foundation provided financial support for this research [grant number PEst-OE/CJP/UI0758/2013].

Notes on contributors

António F. Tavares

António F. Tavares is Associate Professor, member of the Research Center in Political Science and Chair of the Department of International Relations and Public Administration at the School of Economics and Management of the University of Minho, Portugal. He is one of the co-editors of the Urban Affairs Review. His research interests include local public service arrangements, land use management and civic engagement and political participation. Journals in which his work has appeared include Public Management Review, Local Government Studies, Journal of Urban Affairs, International Review of Administrative Sciences, Policy Studies Journal.

Miguel Rodrigues

Miguel Rodrigues is a professor at the Centro de Investigación y Docencia Económicas (CIDE), Mexico, and an assistant professor at the School of Communication, Administration and Tourism of the Polytechnic Institute of Bragança, Portugal. He is also the Deputy Director of the Research Center in Political Science at the University of Minho, Portugal. His research interests are in local government and public management. His work has appeared in Local Government Studies, International Review of Administrative Sciences and Revista del CLAD Reforma y Democracia.