Population size or population density? An empirical examination of scale economies in South Australian local government, 2015/16

ABSTRACT

Advocates of amalgamation typically claim that substantial scale economies flow from municipal mergers, which generate larger local government entities by population size. We examined whether economies of scale exist in council outlays by analysing the expenditure of 68 South Australian local government areas using data from the 2015/16 financial year. However, given the correlation between population size and population density it is important to determine whether the influence of population size on expenditure is due to variations in population density. We find that when local government areas are stratified into subgroups on the basis of population density, the evidence of economies of scale largely evaporates. From a policy perspective, this suggests that in place of municipal mergers, policymakers should instead explore avenues for shared service arrangements in those functions which exhibit scale economies.

KEYWORDS:

• Amalgamation
• economies of scale
• local government
• population density
• population size

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Carolyn Tran

Carolyn Tran is a Business Discipline Leader, Senior lecturer at International College of Management, Sydney. She was a lecturer in Business School, University of New England, specializing in the area of Applied Econometrics, Development Economics and Local Government Studies. She was also formerly a Vice Rector of a Vietnamese College and an Economic Consultant for a World Bank project.

Michael Kortt

Michael Kortt is an Associate Professor in the School of Business and Tourism at Southern Cross University. He has written extensively on public administration and local government, especially on economies of scale and council efficiency. Recent books include Funding the Future (2013) and Councils in Cooperation (2012).

Brian Dollery

Brian Dollery is Professor of Economics and Director of the Centre for Local Government at the University of New England. He has written extensively on local government, especially on structure, finance and reform. Recent books include Australian Local Government Reform (2015), Funding the Future (2013), Councils in Cooperation (2012), Local Government Reform: A Comparative Analysis of Advanced Anglo-American Countries (2008).