We analyse free-riding behaviour of Finnish municipalities prior to voluntary municipal mergers. The merger process creates a temporary common pool problem, because of a delay from the initial decision to the actual merger during which municipalities stay autonomous. Using a difference-indifferences strategy, we find that the stronger free-riding incentive a municipality faced the more it increased its debt and spent its cash reserves. These funds were spent mostly on investments and current expenditures. The results can be attributed to the "law of 1/n" rather than to responding to an anticipated loss of political power or voluntary transfers between merging municipalities. Besides providing a test of the law of 1/n, our results suggest that local jurisdiction mergers are likely to involve a substantial (one-time) cost due to free-riding. This leads to two policy implications. First, during a merger process, some financial constraints on the local level may be a good idea to mitigate common pool problems. Second, for the merger policy to achieve the goal of decreasing public spending without reducing service quality, the scale economies need to be fairly large. Our results should be of wider interest, not only because mergers are used extensively in various countries, but also because common pool problems are present in many other contexts, such as (local) governments bail outs.

This book introduces recent developments in both theoretical and empirical analyses of local public economics. Theories of those economics as well as empirical analyses have been developed dramatically in various directions in recent years. One direction has been to reflect real economic circumstances, especially in Japan. In the early 2000s, Japan experienced the so-called great merger (or consolidation) of municipalities in the Heisei era (1999 through the present), with the number of municipalities shrinking from 3,232 to 1,821 for increasing administrative and financial efficiency. This phenomenon is mainly due to a drastic change in demography in Japan: the dimishing birthrate and aging population. Following the consolidation, regional coordination has been undertaken to raise overall administrative and financial efficiency. In sum, various types of public policies for tackling the decreasing birthrate and aging population have been carried out. Urban sprawl and the timing of municipal mergers are dealt with from a broad point of view, and public child care services and tax competition are investigated from a policy standpoint. Another direction has been to incorporate new ideas for forming theoretical frameworks for local public finance, most of which have been based on static situations. In the recent trend toward globalization, local governments have attended not only to the welfare of residents but also to the interests of regional economic development. In addition, decision making by local governments has tended to be affected by political activities. Thus, the endogenous growth setting and lobbying activities for the activities of local governments are discussed in the book. With these new directions for analyses, the author tackles the topics of tax competition, cross-border shopping, local provision of public goods, and soft budgets, thus covering a broad range of aspects of local public finance.

This book provides a comprehensive and up-to-date picture of territorial change on the municipal level across all European countries. Taking a thematic and comparative perspective, the book builds on extensive quantitative data and a large survey of academic experts in 33 European countries. Territorial organisation of the municipal level in Europe is strongly diversified and yet far from stable. Politically speaking, territorial reforms tend to be risky and difficult, as such changes affect vital interests and identities. Despite such difficulties, the last two decades have witnessed considerable changes in territorial divisions at the municipal level across a range of European countries. In this book, the authors describe and analyse these changes comprehensively, making a vital contribution to understanding the reasons and dynamics of territorial reform processes. This book will be of key interest to scholars, students and practitioners in local or sub-national government, institutional design and more broadly to political science, public administration/policy, human geography, sociology and economics.

This paper uses the Swedish municipal amalgamation reform of 1952 to study the common pool problem in politics. The amalgams were common pools and the municipalities had incentives to free-ride on their amalgam partners by increasing debt prior to amalgamation. We find that municipalities that merged in 1952 increased their debt between 1948 and 1952 when the reform could be anticipated. The increase amounted to 52% of new debt issued or 1.5% of total revenues in the merged municipalities. But contrary to the “law of 1/n”, free-riding did not increase in common pool size.

Drawing on classical and emerging research perspectives, this comprehensive book provides an up-to-date review of local government in Europe. Featuring an impressive range of contributors from both eastern and western Europe, the book addresses three main topics: territorial reforms, democratic empowerment of citizens and the role of local leadership, as well as new trends in local finances. Acknowledging their inherent diversity, the book examines the ways that local governments have responded to shared challenges, such as climate change, increasing populism and democratic deficit in order to identify both the variety and communalities between the country-specific features. In doing so, it provides a rich picture of the latest trends in local government, as well as pointing the way for future developments.

This report provides an overview of “multi-level governance” reforms in OECD countries. It includes case studies on Finland, France, Italy, Japan and New Zealand.