ECONOMIC RESULTS OF SCALE EXPANDING: AN EXAMINATION OVER THE MUNICIPAL AMALGAMATIONS

Municipal amalgamations with a history close to a century are one of the most important local government reforms carried out all over the world. Notably in the North European countries having local governments with large populations, numbers of the municipalities have been decreased through amalgamations in many countries of the world. The most important motivation factor of amalgamation reforms has always been the scale economy thesis. Reform strategies associate the size to efficiency assume that the size increases with municipal amalgamations would decrease the average cost. The expectation of decrease on the costs is based on five motives. These are diffusion of fixed costs to larger units, elimination of waste in small units derived from duplication, obtainment of specialization on municipal administration, the decrease of direct and indirect administrative expenses by means of more realistic planning. However, an important part of the researches that test this relationship on the field cannot reveal clear evidences support the assumption. The number of the studies prove the size of the municipality which comes out via amalgamations can realize scale economies entirely is quite limited. In the studies that have found evidences of scale, scale gains are either limited only with general expenditures of the administration or removed with the exceed of a particular size. Some evidences are only limited with particular services. On the other hand, the bigger part of the researches has evidences which show that the municipal amalgamations do not produce scale economies. This study evaluates the evidences mentioned by means of grouping under definite titles and presents why costs don’t decrease although the size of the municipality increases.

Keywords

Scale economy, amalgamation, merger, centralization-decentralization, reform in local governments, Code 6360.