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Merged municipalities, higher debt: on free-riding and the common pool problem in politics

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Abstract

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.

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Authors and Affiliations

  1. Research Institute of Industrial Economics (IFN), P.O. Box 55665, 10215, Stockholm, Sweden

    Henrik Jordahl & Che-Yuan Liang

  2. Uppsala Center for Fiscal Studies, Department of Economics, Uppsala University, P.O. Box 513, 75120, Uppsala, Sweden

    Che-Yuan Liang

Authors
  1. Henrik Jordahl
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  2. Che-Yuan Liang
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Correspondence to Henrik Jordahl.

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Jordahl, H., Liang, CY. Merged municipalities, higher debt: on free-riding and the common pool problem in politics. Public Choice 143, 157–172 (2010). https://doi.org/10.1007/s11127-009-9495-y

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  • DOI: https://doi.org/10.1007/s11127-009-9495-y

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