Special issue on municipal amalgamations: guest editors’ introduction

KEYWORDS:

• Municipal amalgamations
• economies of scale
• political participation

1. Introduction

The last 50 years have seen a strong trend of local government consolidation. Municipalities have been amalgamated in many countries, and this has increased jurisdiction size of the local level of government (Blom-Hansen et al. 2016, 814). The local tier of government has important economic and democratic functions. Municipalities should deliver public services efficiently and tailor them to local needs. At the same time, municipalities are democratic political systems close to citizens, which should allow for effective political participation. This constitutes a fundamental dilemma between efficiency and democracy. The standard argument goes that service provision, due to economies of scale, is more efficient in larger jurisdictions, while political participation and representation are easier in smaller jurisdictions due to the closeness between politicians and citizens. This dilemma – the trade-off between democratic and economic concerns – is a classic question in political science, dating back to Greek thinkers (Blom-Hansen, Houlberg & Serritzlew, 2014).

The aim of this special issue is to shed new light on this dilemma, based on the experience from recent local government amalgamations. The articles in the special issue present new evidence from Austria, Australia, Denmark, Germany, Israel, Switzerland and Wales, drawing upon a variety of methods. Another important question is how amalgamations come about. Amalgamation reforms are rarely designed to reach an optimal jurisdiction size if it exists at all and whatever it may be. A reform is the result of a political process. Three articles study the politics of municipal amalgamations and show how municipalities find their amalgamation partners, which political rhetoric is effective, and why the central control of municipal amalgamation matter.

This introduction provides the readers of the special issue with a short summary of where the literatures on economic effects, democratic effects, and the politics of amalgamation are currently standing, how the articles included in the special issue help to advance these literatures, and what are worthwhile directions for future research. We discuss the seven articles published in the special issue, as well as two articles (Heinisch et al. 2018 and Lapointe, Saarimaa, and Tukiainen 2018), which were submitted to the special issue but were published in issue 44.4 of Local Government Studies.

2. Economic effects

Possibly the most motivating rationale for municipal amalgamation reforms is the possibility for economies of scale in the provision of local public services. If such economies of scale exist, then small municipalities will find it more costly to provide local services to their residents, compared to large municipalities.¹ This creates an economic incentive to perform municipal amalgamations. Whether economies of scale actually exist, however, is a contentious debate (see, for example, Boyne 1995).

Another related avenue of research is the study of cost reductions after municipal amalgamations. If such cost reductions exist, then they provide some evidence regarding the ability of municipal amalgamations to internalize economies of scale. However, the literature here is divided. According to, for example, Reingewertz (2012) and Blesse and Baskaran (2016) municipal amalgamations are able to reduce costs, while Allers and Geertsema (2016) and Blom-Hansen et al. (2016) suggest this is not the case.

If economies of scale exhaust themselves once the municipality reaches a certain size, then amalgamation reforms would not be worthwhile for large municipalities. An article in this spirit is Blesse and Roesel (2019) in this special issue (see also Roesel 2017). They use a difference-in-differences framework to analyse county mergers in both Austria and Germany. Both cases provide the same answer as county mergers do not reduce costs. Since they also spot a decrease in voter turnout, Blesse and Roesel conclude that county mergers are not beneficial. This contribution is important as it puts an upper bound on the desirability of municipal mergers: The average county population in Germany and Austria is 166 thousand and 82 thousand, respectively. Hence, the study offers new evidence that economies of scale probably do not play a role in merging very large municipalities.

Another factor related to size is density. Cost savings might be more attainable when population density, not necessarily population size, increases. The article in this special issue by Tran, Kortt, and Dollery (2019) analyses expenditure levels of 68 South Australian local governments and suggests that patterns of economies of scale are entirely a result of population density and not population size. Since amalgamation reforms usually don’t increase density, their ability to fully exploit economies of scale might be limited.

Finally, another special-issue article, Strebel (2019), also provides some suggestive evidence regarding economies of scale. He shows that voting decisions on municipal mergers in three Swiss cantons are affected by size. Specifically, small municipalities are less likely to reject a merger. This can be due to the diseconomies of being small, which create a fiscal burden and therefore reduce opposition to mergers. The article does not test this mechanism, but it is in line with its results, and other mechanisms seem less plausible since communal forces and localism would work in the other direction (i.e., they are usually positively correlated with smallness).

One economic challenge in amalgamating municipalities is the incentive it creates to over-spend before the amalgamation, due to the common-pool problem (Jordahl and Liang 2010). Therefore, an important recommendation is to announce the amalgamation reform a short time before it is implemented. In this special issue, Hansen (2019) analyses common pool issues in the 2007 amalgamation reform in Denmark. The article corroborates the findings of prior literature regarding an increase in spending prior to amalgamation. In addition to earlier studies, he shows that this phenomenon has an important political aspect: Spending increased only in municipalities where mayors did not get re-elected.

Summing up the three articles dealing with the economic effects of municipal amalgamations, the results suggest that large and non-dense municipalities should not expect large gains in efficiency from an amalgamation. The results regarding small municipalities are suggestive but go in the opposite direction. Furthermore, amalgamations lead to short-term spending-increases due to the common pool-problem, particularly when political leaders are unlikely to control the new amalgamated municipality. The main motivation for municipal amalgamations, the potential for economic gains, is in other words far from certain to materialize in practice.

3. Democratic effects

The other side of the dilemma of optimal jurisdiction size of local governments is the potential negative democratic effects. Five articles of the special issue address the question of turn-out in local elections. The basic logic is that voters may feel less connected to their representatives in larger jurisdictions (Lassen and Serritzlew 2011), and theory predicts that voter turnout will be adversely affected because turnout is negatively correlated with population.

Bhatti and Hansen (2019) examine the relationship between size and turnout in a quasi-experiment in an effort to address the problem of endogeneity. Many amalgamation reforms are gradual and may happen as a response to problems of specific municipalities, including democratic problems. They find a short-term positive effect of amalgamation on voter turnout of roughly 1.5%-2% and suggest that it is a result of an attempt to preserve the influence of political actors from the pre-amalgamation municipalities. Their results for the long term are less precise, but, if anything, negative and are consistent with a 2% decline in turnout. These limited effects contrast with some of the literature which finds more pronounced effects of amalgamation on local democracy (including in this special issue). This is possibly due to the horizon of analysis, since other studies look at short to medium run outcomes, while Bhatti and Hansen look at medium to long-run effects.

Bönisch, Geys, and Michelsen (2019) argue that an amalgamation matters for more than jurisdiction size. It also changes the composition of the population into dominant and dominated groups of voters. They argue that the increasing size of the dominant group has instrumental and expressive effects on turn-out. Moving to their empirical results, they analyse a group size effect by looking at post-amalgamation voter turnout and suggest that large groups are associated with lower voter turnout. This is true for both absolute and relative sizes – when a group becomes relatively larger, turnout decreases, also when it becomes larger in absolute terms. Finally, they show that the interaction of absolute and relative sizes has an attenuating (i.e., positive) effect on voter turnout. Since their results are based on a cross-section of municipalities, it is hard to compare them to the other studies in the special issue, which rely on variation over time. Nevertheless, they show that competitiveness between groups plays a key role in voting patterns.

Heinisch et al. (2018) study the short-term effects of the 2015 amalgamation reform in the Austrian state of Styria. They compare voter turnout in the 2015 elections (right after the amalgamations took place) to voter turnout in 2010. They suggest that the short-term effect of the amalgamation was a 1.3 percentage point’s decrease in voter turnout. One explanation for the decrease in turnout, which contrasts with the short-term increase observed by Bhatti and Hansen (see below), is that municipalities in Styria tend to be very small (average size of 1,754 inhabitants), and size differences are not large. It means that in most amalgamations all municipalities faced a decrease in representation. This result is also in line with Lapointe, Saarimaa, and Tukiainen (2018).

Lapointe, Saarimaa, and Tukiainen (2018) study the effect of municipal amalgamations on voter turnout, using the 2009 amalgamation reform in Finland. They find a heterogeneous effect based on size: amalgamations reduce voter turnout in small municipalities by 4 percentage points, while turnout is not affected in large municipalities (relative to their amalgamation partner(s)). Mergers are also negatively correlated with a subjective measure of the political efficacy of voters – the feeling that they have an impact on the political process. In addition, the decline in turnout is correlated with the attitudes of voters. Finally, Blesse and Roesel (2019) examine voter turnout in the medium term after the 2007 county amalgamation reform in Germany. They find a 4.3 percentage points decrease in voter turnout in county elections after the merger.

Summing up the results regarding size and turn-out, the studies offer mixed results. The overall conclusion is that amalgamations have negative, but limited, effects on voter turn-out in the medium to long run. The results for the short run are mixed. This suggests that municipal amalgamations can have adverse effects on democracy. Returning to the classic dilemma between democracy and economy, the potential of amalgamation reform of local government is quite bleak, at least in larger jurisdiction sizes: it is likely not to have much potential for gains in economies of scale, but may have negative consequences for democracy.

4. The politics of municipal amalgamation

Municipal amalgamation reforms are political reforms. They should not be understood as technical exercises to optimize jurisdiction size, but rather as results of political processes. The special issue examines the politics of municipal amalgamations in different ways.

Strebel (2019) discusses how politics influence the decision to amalgamate. This line of work continues several articles by Saarimaa and Tukiainen (2014, 2015). Specifically, he analyses popular vote decisions on mergers of 541 municipalities involved in 166 different merger projects in three Swiss cantons since the new millennium. He shows that a higher vote share of national-conservative parties in the merger coalition increases the probability that voters reject a merger. He concludes that voters are concerned with self-determination, but only when the pressures of smallness are not overwhelming. This helps explain why voluntary mergers are many times seem ineffective in bringing economies of scale into fulfilment (see Allers and Geersma (2016) for example).

Finally, the article by Drew, Razin, and Andrews (2019) examines the marketing of the amalgamation reform and how various groups (namely, opponents and proponents) build their rhetoric arguments against or in favour amalgamation. They suggest that opponents many times use the threat of ‘dreadful consequences’ as a rhetoric device against amalgamation. The authors advocate the use of ‘mini-publics’ – small representative groups which will be gathered to discuss amalgamation consequences. These small groups will facilitate discussion and will help tackle the challenges in the amalgamation process.

5. Future research

The literature on municipal amalgamations has seen a rapid increase in the last decade. As was summarized above, we now know a lot more on the causes and consequences of municipal amalgamations. However, there are still debates and open questions in this line of work. These will be summarized below, in the hope that they would inspire future research on this topic.

A first open question is the issue of economies of scale. Not enough effort has been given to properly estimating the causal link between the size of the municipality and the cost per resident. The literature is still divided into core questions regarding economies of scale. What services entail economies of scale? What population levels exhibit economies of scale and do these reverse for larger municipalities and in what threshold? These disagreements are also present in the literature dealing with the fiscal consequences of municipal amalgamations. Are small municipalities able to reduce costs after a merger, and to what extent?

Another key issue is the effect of municipal amalgamations on representation. While this special issue contains several articles which offer evidence for reductions in voter turnout, it also contains results which hint to a short to medium term effect. Are size differences between merging municipalities the key factor determining turnout, does time reduce the amalgamation effect on turnout? These are questions which require more evidence to be answered fully.

Another issue which deserves more attention is whether municipal amalgamations are affected (or should be affected) by the fiscal equivalence rule (Olson 1969, 1986). Fiscal equivalence ties between the area of the jurisdiction and the area which is affected by the public good. Do amalgamations help in achieving a better match between the jurisdiction and the affected area? This question is still unanswered.

6. Conclusion

The special issue has provided new evidence from several countries on the classical question of the politics of optimal jurisdiction size of local government. A traditional argument is that the question of size is a dilemma between economic and democratic concerns: Larger municipalities may be more efficient (due to economies of scale), but at a democratic cost (due to increased distance between politicians and voters). The overall findings in this special issue are that the economic benefits of amalgamation are doubtful, especially in large municipalities, and that democratic costs are likely but limited. The special issue has also examined the politics of amalgamation. The main message is that municipal amalgamation is a political process, and the rhetoric, process and party political factors are crucial for how amalgamation reforms are designed. Municipal amalgamation reform is a result of a political struggle, and there is no guarantee that economic benefits will materialize and democratic costs avoided.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Yaniv Reingewertz

Yaniv Reingewertz is a lecturer in the Department of Public Administration and Policy of the School of Political Sciences at the University of Haifa, Israel. He is also Head of the Economic Unit at the Brookdale Institute, Jerusalem. His research interests include local public finance, public and political economics, and environmental economics.

Soren Serritzlew

Soren Serritzlew is a professor at the Department of Political Science at Aarhus University. Among his research interests are effects of public reforms, local government and democracy and public budgeting.

Notes

1. We will use the more common phrase economies of scale, though it is actually more accurate to define the issue at hand as economies of size (see Fox and Gurley 2006).