Do Municipal Amalgamations Work? Evidence from Municipalities in Israel

Abstract

Municipal amalgamation reforms are performed in most developed countries. The basic rationale for these reforms is taking advantage of economies of scale in municipal provision of public services. Contrary to theory and common wisdom, empirical literature finds almost no benefits arising from an amalgamation. This literature, however, relies on scant evidence. The purpose of this paper is to present evidence for the budgetary outcomes of municipal amalgamations. The study is based on an extensive panel data of municipalities in Israel for the years 1999-2007. The evaluation uses the amalgamation reform of 2003 analyzed with the difference in differences methodology in order to assess changes in the budgetary situation of the amalgamated municipalities. The results indicate that the amalgamations resulted in a decrease of about 8% in municipal expenditures. I find no evidence of a decrease in the level of services in the amalgamated municipalities. The results suggest that municipal amalgamations bring economies of scale into practice.