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Agglomeration, Population Size, and the Cost of Providing Public Services: An Empirical Analysis for German States

PFM, Vol. 4 No. 4, (2004)

This paper is concerned with the question of what extent population size and density
affect the cost of providing public services at the subnational level. Empirical estimates
of cost functions are obtained from an analysis of the expenditures of German states
disaggregated into about 40 government functions. The empirical results indicate that,
generally, there is no significant relationship between population density and the cost
of providing public goods. At the same time, cost is almost proportionately related to
population size, indicating that goods and services provided by the German states
display only a limited degree of publicness.

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