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Trends in Nordic municipal amalgamations

Municipal amalgamation: are efficiency gains immediate or long-term? Municipal structures have undergone major overhauls in several Nordic countries over the last decade. Structural reforms have taken place in Denmark and Greenland while a more modest process of gradual reduction in the total number of municipalities is currently taking place in Iceland, Finland and the Faroe Islands. In Norway, Sweden and Åland however the municipal structure remains more or less fixed:

Nordic municipal structures 2000 - 2010

The arguments used for and against reform of the municipal structure can be grouped into those concerned with efficiency and coordination on the one hand and those singling out various aspects of the democratic process on the other. Helpfully, a number of recent evaluations of municipal merger outcomes in Denmark and Norway provide us with significant new insights into these issues.

Efficiency and coordination

In all Nordic countries, a central argument in promoting municipal mergers is that public welfare services are more efficiently produced in larger municipalities. The nature of the municipal merger process may itself however play a key role. Indeed, significant differences can be seen to exist between the comprehensive and systemic approach used in the Danish 2007 structural reform process and the piecemeal approach to the municipal structure adopted by countries such as Sweden and Norway.

Moreover, recent econometric analyses of the 1952 reform of the municipal structure in Sweden suggest that the municipalities that were to be amalgamated increased their debt in anticipation of forthcoming mergers more than non-merging municipalities did (Hanes 2003; Jordahl and Liang, 2010).

In Denmark similar concern has been raised as to whether the 2007 structural reform has had similar effects on the financial behaviour of the merging municipalities. Welling Hansen (2009) analysed econometrically whether Danish municipalities behaved in a financially opportunistic fashion in the period leading up to 2007.

This primarily concerns the incentive to hoard resources in the soon-to-be merged municipalities in order to increase expenditures or consume public assets in the period prior to the reform. The Danish structural reform process seems however to have had only a modest effect in this regard.

Alternatively, incentives may have existed in the new and enlarged municipalities to increase expenditures in order to harmonise municipal service levels after the implementation of the mergers.

Whether the new municipal structure affected the expenditure levels of the new Danish municipalities in the first year after the reform was also assessed by Welling Hansen. Here, evidence of expenditure increases was most clearly manifest in the area of schools and education. Overall, the effects were limited, leading Welling Hansen to conclude that the Danish state, at least in the immediate term, has succeeded in keeping the new municipalities under financial control.

Case studies from four recent municipal mergers in Norway found that the amalgamated municipalities improved their level of quality in the provision of public services. By pooling administrative and management staff, the municipalities have taken advantage of economies of scale while additional resources have been provided to improve public service provision (Brandtzæg 2009).

When such amalgamations brought together a smaller municipality with a much larger one, and where each had very different quality levels from the outset, the new common service levels were not necessarily an improvement for all inhabitants. User surveys confirm this, with the most high profile concerns in terms of quality improvements, or the lack thereof, related to the production of social services, care for the elderly, childcare and education.

It remains however a little premature to attempt to assess these gains fully. Previous research has found that the gains made in respect of pooling administrative and management staff usually emerge only 3-4 years after full amalgamation has taken place (Deloitte, 2008). Nevertheless, by 2009 46% of the new Danish municipalities reported that their ability to recruit qualified professionals had improved. In terms of post-structural reform capacity building, the municipalities reported that most immediate improvements have been delimited to the sectors of physical planning, public health and social services (Indenrigs- og socialministeriet 2009).

The issue of democracy

Research on the effects of the Danish 2007 Structural Reform on local political decision-making is also starting to emerge. Kjær et al. (2009) assessed whether political influence has moved inwards (from backbenchers to the political elite), outwards (from local councils to the administration) and upwards (towards the Danish central government) after the reform.

Comparing the perceptions local councillors had on these issues in 2003 and 2009, Kjær et al. found evidence of political decision-making influence having moved both inwards (toward the local political elite) and outwards (towards the administration) in the larger, amalgamated municipalities.

Nordic municipal structures 2000 - 2010

Nordic municipal structures 2000 - 2010

By Jon M. Steineke, former Researcher at Nordregio

 

Nordic municipal structures 2000 - 2010


References
Aalbu, Hallgeir, Kai Böhme and Åke Uhlin (2009), Administrative reform – argument and values. Nordic research programme on the internationalisation of regional development policies – report 6. Stockholm: Nordregio.

Brandtzæg, Bent Aslak (2009), Frivillige kommunesammenslåinger 2005-2008. Erfaringer og effekter fra Bodø, Aure, Vindafjord og Kristiansund. TF-report no. 258. Telemarksforskning, Bø.

Deloitte (2008), Kommunalreformens effecter. Deloitte Denmark (September).

Hanes, Niklas (2003), Empirical studies in local public finance. PhD dissertation, University of Umeå.

Indenrigs- og socialministeriet (2009), Status for kommunalreformens gennemførelse 2009 (April).

Jordahl, Henrik and Che-Yuan Liang (2010), Merged municipalities, higher debt: on free-riding and the common pool problem in politics. Forthcoming in Public Choice.

Kjær, Ulrik, Ulf Hjalmar and Asmus Olsen (2009), Municipal amalgamations and the democratic functioning of local councils: the Danish 2007 Structural Reform as a case. Paper presented at the European Group of Public Administration (EGPA) conference in Malta September 2-5.

Welling Hansen, Sune (2009), Towards genesis or the grave? Financial effects of local government mergers. PhD dissertation, University of Southern Denmark.