Nationaløkonomisk tidsskrift,
Nationaløkonomisk Forening

Abstract: The article estimates the distributional consequences of the Danish equalisation system, and a decomposition of the distributional effects into individual components is carried out. Municipalities and regions that stand as the main gainers or losers of amalgamation reform are identified based on the assumption that the equalisation system remains unchanged. The result shows that the absolute largest redistribution among the municipalities is made on the basis of differences in income whereas equalisation due to municipal expenses is limited. In addition, state subsidy is to a limited extent used for redistribution by subsidising municipalities with a low level of income. However, amalgamations will reduce the number of municipalities that are entitled to receive state subsidies because of a poor income level (§18 subsidy). The total reduction of the §18 subsidy is 415 million DKK, and it especially affects municipalities that are among the poorest when measuring by an indicator for the relation between income and expenditure. Another effect of the reform arises because the principle that all municipalities are assigned an identical basic amount is maintained when calculating the expenditure needs. As a consequence this reduces the payment to amalgated municipalities, but at the same time these municipalities will be able to realise synergetic profits through the amalgamations. The effect of the financial and equalisation system reduces the financial transfers to the non-metropolitan areas, and in particular the counties of Sønderjylland, Viborg and Vestsjælland stand to lose a lot. However, the total effect of the reform for the individual municipality depends critically on to which extent the amalgamated municipalities are able to realise the synergetic profits.

Keywords: kommunalreform; kommunalpolitik

JEL-codes: A10

Language: Danish

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