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Do merging local governments free ride on their counterparts when facing boundary reform?

Björn Tyrefors

Journal of Public Economics, 2009, vol. 93, issue 5-6, 721-728

Abstract: The Western world exhibited a significant trend towards larger local governments in the twentieth century, which was driven to a large extent by boundary reforms. Boundary reforms can provide economic benefits, but may also give rise to costs driven by opportunistic political behavior. This study uses a Swedish compulsory reform to test for such behavior. The reform gives a local government the incentive to accumulate debt before a merger takes place, since the taxpayers in the new locality will share the cost. The strength of the incentive to free ride is determined by the population size of the initial locality relative to that of the new locality. I find an economically large and statistically significant free riding effect.

Keywords: Amalgamations; Annexations; Boundary; reforms; Common; pool; Difference-in-difference; Fiscal; policy; Free; riding; Local; governments (search for similar items in EconPapers)
Date: 2009
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Handle: RePEc:eee:pubeco:v:93:y:2009:i:5-6:p:721-728