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A procedure for the ex-ante assessment of compulsory municipal amalgamation poli-cies

PFM, Vol. 17 No. 2, (2017)

The aim of the paper is to develop a procedure that allows policy makers to make an ex-ante assessment of a general compulsory amalgamation policy, providing quantita-tive indications about the possible financial effects. The amalgamation of small munici-palities is a widespread practice all over the world. Policy makers usually justify amal-gamation policies with the hypothesis that local public service provision is characterized by economies of scale and scope. However, population size is not the only determinant of economies of scale, which depend on many other factors. For these reasons, the expected effects of any amalgamation policy are uncertain, and ex-post empirical anal-yses are unable to offer unambiguous indications to policy makers since all programs differ. After a brief discussion of the relevant issues concerning amalgamation, we pre-sent the procedure used to simulate the economics and administrative effects of a gen-eral compulsory amalgamation policy. The procedure is tested with reference to the municipalities of Veneto, a region of Italy, for which we provide the results of a number of simulations under alternative amalgamation policies. The main result is that amal-gamation policies based only on the a priori rule that small municipalities should merge may be very inefficient, because the expenditure reduction following an amalgamation policy may depend to a considerable extent on other territorial and socio-economic characteristics of the municipalities involved.

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