Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1353: What Happens when Municipalities Run Corporations? Empirical Evidence from 290 Swedish Municipalities

Andreas Bergh (), Gissur Ó Erlingsson and Emanuel Wittberg
Additional contact information
Andreas Bergh: Department of Economics, Lund, Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Gissur Ó Erlingsson: Centre for Local Government Studies, Linköping University
Emanuel Wittberg: Centre for Local Government Studies and the Institute for Analytical Sociology, Linköping University

Abstract: Across the globe, local governments have increasingly begun to rely on municipally owned corporations (MOCs) to provide public services, mounting to what scholars describe as a burgeoning corporatization in local government. Some studies have described this development as a rational response to financial stress and contemporary austerity challenges, and emphasise the cost-efficiency of MOCs (the optimistic view). However, several scholars have identified problems associated MOCs relating to weak steering and supervision, lack of accountability, and heightened corruption risks (the sceptical view). Hitherto, no studies have tested these diametrically opposing expectations on the effects MOCs in the one and same analysis. This paper addresses the competing views by studying Sweden, a country with a dramatic growth in the number of MOCs since the 1970s. We examine the association between the number of MOCs, citizen satisfaction with local government, local tax rates and a survey-based corruption measure for all 290 Swedish municipalities. Ultimately questioning the ‘optimistic view’, the results indicate that municipalities that rely heavily on MOCs in service delivery have higher taxes, not more satisfied citizens, and are associated with higher corruption levels.

Keywords: Municipally owned corporations; Corruption; Arms-length principle; Hybridorganizations; Quasi-privatization; New public management

JEL-codes: D73; H79

23 pages, First version: September 3, 2020. Revised: October 23, 2020.

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