Advertisement

Public Choice

, Volume 127, Issue 1–2, pp 75–95 | Cite as

Local government consolidations: The impact of political transaction costs

  • Rune J. SørensenEmail author
Articles

Abstract

Local government in Norway comprises a large number of small municipalities. Cost efficiency can be improved by consolidating local authorities, and central government has designed a framework to stimulate voluntary mergers. Existing theories suggest that political transaction costs will impede consolidations. (1) Generous grants compensate diseconomies of scale. Central government has promised small municipalities that grant levels will be maintained, but policy promises may not be credible. (2) Property rights to local revenues are nullified when consolidations have been implemented. High-revenue municipalities will therefore go against merger with a poorer neighbor. (3) A consolidated local council may be composed of different political parties, and it may therefore pursue other policies than an existing council. Expected changes in party strength can lead municipalities to oppose a proposed consolidation. (4) Senior politicians are less likely to support mergers, particularly if they come from small polities.

We offer an explicit test of these propositions based on data for Norwegian local government. Elected politicians and administrative leaders are more interested in consolidating when efficiency gains are large. Local revenue disparities and to some extent dissimilar party preferences are significant impediments to voluntary mergers. Additionally, smaller municipalities are often prepared to sacrifice some efficiency gain to remain independent polities.

Keywords

Local Government Central Government Efficiency Gain Local Council Explicit Test 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Alesina, A., & Spolaore, E. (1997). On the number and size of nations. The Quarterly Journal of Economics, 112, 1027–1056.CrossRefGoogle Scholar
  2. Bolton, P., & Roland, G. (1997). The breakup of nations: A political economy analysis. The Quarterly Journal of Economics, 112, 1057–1090.CrossRefGoogle Scholar
  3. Borge, L. E. (1995). Economic and political determinants of fee income in norwegian local governments. Public Choice, 83, 353–373.CrossRefGoogle Scholar
  4. Borge, L. E., & Sørensen, R. J. (2001). Aggregating spending preferences: An empirical analysis of party preferences in norwegian local governments. Public Choice, 110, 225–243.CrossRefGoogle Scholar
  5. Brink, A. (2003). The break-up of municipalities — voting behavior in local referenda. Working Papers in Economics No. 58, Department of Economics, Göteborg University, http://swopec.hhs.se/gunwpe/abs/gunwpe0058.htm.
  6. Buchanan, J. (1965). An economic theory of clubs. Economica, 32, 1–14.Google Scholar
  7. Coase, R. H. (1960). The problem of social cost. Journal of Law and Economics, 3, 1–44.CrossRefGoogle Scholar
  8. Dixit, A. (1996). The Making of Economic Policy. A Transaction-Cost Politics Perpective. The MIT Press, Cambridge, Mass and London.Google Scholar
  9. Dixit, A., & Londregan, J. (1995). Redistributive politics and economic efficiency. American Political Science Review, 89, 856–866.CrossRefGoogle Scholar
  10. Dixit, A., & Londregan, J. (1996). The determinants of success of special interests in redistributive politics. The Journal of Politics, 58, 1132–1155.Google Scholar
  11. Inman, R., & Rubinfeld, D. (1997). The political economy of federalism. In D. C. Mueller (Ed.), Perspectives on Public Choice. A Handbook. Cambridge University Press.Google Scholar
  12. Johansson, E. (2003). Intergovernmental grants as a tactical instrument: Empirical evidence from swedish municipalities. Journal of Public Economics, 87, 883–915.CrossRefGoogle Scholar
  13. Kalseth, J., & Rattsø, J. (1997). Political control of administrative spending: The case of local governments in norway. Economics and Politics, 10, 63–83.CrossRefGoogle Scholar
  14. Kalseth, J., Rattsø, J., & og Sørensen, R. J. (1993). Ressursbruken i kommunal administrasjon: hvor mye kan høstes ved færre smákommuner? Tidsskrift for Samfunnsforskning.Google Scholar
  15. Kydland, F. E., & Prescott, E. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. The Journal of Political Economy, 85, 473–492.CrossRefGoogle Scholar
  16. Langørgen, A. R., & Aaberge og, R. Áserud. (2002). Kostnadsbesparelser ved sammensláing av kommuner, Rapporter 2002/15, Statistisk sentralbyrá.Google Scholar
  17. NOU 1992:15: Kommune-og fylkesinndelingen i et Norge i forandring.Google Scholar
  18. Oates, W. C. (1972). Fiscal Federalism. New York, Harcourt, Brace and Jovanovich.Google Scholar
  19. Oates, W. E. (1999). An essay of fiscal federalism. Journal of Economic Literature, 37, 1120–1149.Google Scholar
  20. Rattsø, J., & Sørensen, R. J. (1998). Local governments integrated in a welfare state: A review of norwegian local government performance. In J. Rattsø (Ed.), Fiscal Federalism and State-Local Finance: The Scandinavian Perspective. Celtenham: Edward Elgar.Google Scholar
  21. Sørensen, R. J. (1995). The demand for local government goods: The impact of parties, committees, and public sector politicians. European Journal of Political Research 27, 119–141.Google Scholar
  22. Sørensen, R. J. (2003). The political economy of intergovernmental grants: The norwegian case. European Journal of Political Research, 42, 77–110.CrossRefGoogle Scholar
  23. Tiebout, C. (1956). A pure theory of local expenditures. Journal of Political Economy, 64, 416–424.CrossRefGoogle Scholar
  24. Young, R. (2002). Economic Factors in the Secession Calculus: A survey, Working Paper, Department of Political Science, University of Western Ontario, http://www.core.ucl.ac.be/PolIntDes/papers/young.pdf.

Copyright information

© Springer Science + Business Media, Inc. 2006

Authors and Affiliations

  1. 1.Norwegian School of Management (BI)SandvikaNorway

Personalised recommendations