Working Paper Series
Merged Municipalities, Higher Debt: On Free-riding and the Common Pool Problem in Politics
() and Che-Yuan Liang
Abstract: We use the 1952 Swedish municipal amalgamation reform to
study free-riding and the common pool problem in politics. We expect
municipalities that were affected by the reform to increase their debt in
anticipation of a merger, and this effect to be larger if they were merged
with many other populous municipalities (i.e. facing a large common pool).
We use ordinary least squares and matching on the complete cross section of
rural municipalities for the period 1947-1951, fixed effects when
exploiting the panel features, as well as a geographical instrumental
variables strategy. We find an average treatment effect close to the amount
that the average merged municipality increased its debt with during this
period, which corresponds to 2.8 percent of average income or 63 percent of
the average increase in income. However, we do not find larger increases in
municipalities that were part of a larger common pool.
Keywords: Common Pool; Municipal Amalgamation; Local Governments; (follow links to similar papers)
JEL-Codes: D72; H73; H74; H77; R53; (follow links to similar papers)
34 pages, November 22, 2006
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- This paper is published as:
Jordahl, Henrik and Che-Yuan Liang, (2010), 'Merged Municipalities, Higher Debt: On Free-riding and the Common Pool Problem in Politics', Public Choice, Vol. 143, No. 1-2, pages 157-172
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