Urban sprawl and the financial standing of municipalities

Abstract

Purpose – Without undertaking a comprehensive assessment of the costs and benefits of the urban sprawl, this article attempts to analyse the impact of this phenomenon on the financial standing of municipalities. Research method – We have primarily used difference-in-differences (DiD) regression analysis with refe-rence to the treatment group (suburban municipalities) and the control group (other municipalities excluding cities with county status). The research was undertaken during the years 2004-2018 and used financial data from the Ministry of Finance. Results – Urban sprawl is a beneficial phenomenon, at least in the short and medium term from the perspective of the financial standing of municipalities (which experience an inflow of new residents). It is clearly evidenced in the revenues of the budgets of suburban municipalities, i.e. an increase in both total and per capita revenues in relation to the control group. The effect of suburbanisation is also visible on the spending side, although, due to the economies of scale, current expenditures grow relatively slower than the number of inhabitants. The operating surplus of the budget per capita is increasing more rapidly in suburban municipalities compared to the control group. The same is true for municipal investment expenditures. Originality /value / implications /recommendations – In reviewing the subject literature, the issue of the impact of urban sprawl on the finances of local government units (LGU) is treated marginally and indirectly, e.g. when discussing the costs of providing local public services. This article aims to present a synthetic and quantitative review of the impact of suburbanisation on the financial position of LGU budgets, comparing the situation of suburban municipalities to other municipalities. Attracting “new” residents is a desirable strategy in the development of municipalities, hence with the current system of financing, LGUs are likely to oppose changes aimed at limiting or controlling the suburbanisation process.