SSE/EFI Working Paper Series in Economics and Finance
No 626:
Do Politicians Free-ride? - an empirical test of the common pool model
Björn Tyrefors ()
Abstract: In the twentieth century there was a significant trend
towards larger local governments through amalgamations in the western
world. Amalgamations provide potential economic benefits but might also
give rise to costs driven by opportunistic political behavior. This study
uses a compulsory amalgamation reform of municipalities in Sweden to test
for such behavior. The reform gives a local government incentives to
accumulate debt before the amalgamation takes place, since the cost will be
shared by all tax payers in the new municipality. The strength of this
incentive to free ride will be determined by the locality's population
size, relative to the future size of the new locality. We find an
economically large and statistically significant free riding effect and the
result is robust.
Keywords: common pool; amalgamations; free riding; local government; difference-in-difference; (follow links to similar papers)
JEL-Codes: D72; E62; H70; (follow links to similar papers)
24 pages, April 26, 2006, Revised February 28, 2007
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