Economies of scale and Brazilian local government expenditure: evidence from the State of Paraná

ABSTRACT

Controversy surrounds local government reform, particularly efforts directed at reducing the number of local authorities to secure economies of scale. We examine whether economies of scale exist in local government outlays by analysing the expenditure of 398 municipalities for the Brazilian state of Paraná using a 16-year panel dataset covering the period 2002–2017. We find evidence that municipal expenditure is characterised by substantial scale economies. However, given the strong correlation between population size and population density, it is important to ascertain whether the influence of population size on municipal expenditure is due to variations in population density or not. When local government areas are divided into sub-groups based on population density, evidence of scale economies remains with the majority of councils operating below optimal size. Municipal consolidations may thus lead to lower per capita expenditure.

KEYWORDS:

• Brazil
• local government
• Paraná
• population density
• scale economies

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. To ensure the municipalities remain in the same density category over time, we use 2017 density values. If this approach is not employed, it makes no significant difference to our results since only a very small number of municipalities ‘switch’ density categories over time. However, this approach substantially simplifies and aids the subsequent interpretation of Figure 1.

Additional information

Funding

This study was financed, in part, by the Coordenação de Aperfeiçoamento de Pessoal de Nível Superior [88881.186958/2018-01].

Notes on contributors

Luan Vinicius Bernardelli

Luan Vinicius Bernardelli is a PhD candidate at the State University of Maringá, Brazil, and a visiting scholar at Southern Cross University, Australia. His principal research area is the economics of religion, and his recent publications have appeared in Revista Paranaense de Desenvolvimento, Revista Estudos Econômicos, Economia & Região, Journal of Religion and Health, and Revista Brasileira de Estudos Regionais e Urbanos.

Michael A. Kortt

Michael A. Kortt is an Associate Professor in the School of Business and Tourism at Southern Cross University, Australia. His principal research area is public administration. His publications have appeared in Administration & Society, Australian Journal of Political Science, Australian Journal of Public Administration, Public Management Review, Social Indicators Research, and Tourism Analysis.

Brian Dollery

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