The effects of inter-municipal cooperation and central grant allocation on the size of the French local public sector

Touria Jaaidane and Sophie Larribeau ()

European Journal of Political Economy, 2023, vol. 76, issue C

Abstract: The analysis of French municipalities’ public personnel expenditures allows us to study the issue of the size of the local public sector. We concentrate on two paths that French authorities have followed to limit it, i.e., the promotion of inter-municipal cooperation (IMC) and the cut in grants received by municipalities. Our objective is to evaluate their respective role in the evolution of public personnel expenditures at the municipal level, in a context where local politics comes into play. We consider a large panel dataset of municipalities embedded in IMC structures between 2011 and 2018. Our main results, obtained using an original identification strategy, are threefold. We first find evidence that a substitution effect between municipal and IMC personnel expenditures is at work. Second, we find a partisan distorsion through the grant allocation: despite its formula-based definition, aligned and unaligned municipalities are treated differently by the central government. Third, we show that cuts in grants lead to cuts in municipalities’ public wage bills, while partisanship hinders such cuts.

Keywords: Public sector size; Local governments; Inter-municipal cooperation; Intergovernmental transfers; Partisanship; Instrumental variables (search for similar items in EconPapers)
JEL-codes: C23 D78 H70 H72 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: The effects of inter-municipal cooperation and central grant allocation on the size of the French local public sector (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:76:y:2023:i:c:s0176268022000714

DOI: 10.1016/j.ejpoleco.2022.102271

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