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Symposium on Amalgamation and Financial Sustainability in Local Government: Part 1

By Dollery, Brian; Grant, Bligh | Public Finance and Management, April 1, 2013 | Go to article overview

Symposium on Amalgamation and Financial Sustainability in Local Government: Part 1


Dollery, Brian, Grant, Bligh, Public Finance and Management


ABSTRACT

Local government amalgamation, frequently also referred to as council consolidation and municipal mergers, whereby small local authorities are subsumed into larger entities, has often been used as a means of improving the operation of municipalities and enhancing their financial viability. However, empirical evidence on the impact of mergers is mixed. This Symposium focuses on the effects of amalgamation on the financial sustainability of local government.

1. INTRODUCTION TO SYMPOSIUM

Local government across the developed world has witnessed a period of demanding reform over the past few decades. Although the nature and pace of reform has been patchy, both within specific local government jurisdictions in a particular country, as well as between local government systems in different nations, comparatively few municipal systems have escaped unscathed. In Municipal Reform in Canada, Garcea and LeSage (2005) developed a useful analytical taxonomy comprising five discrete categories of local government reform: structural reform, jurisdictional reform, functional reform, financial reform, and internal governance and management reform. This typology can be applied to local government reform programs in any national, provincial or state jurisdiction, regardless of its nature, structure or functions.

Garcea and LeSage (2005, p. 5) defined structural reform as the reconfigu- ration of local government in terms of the 'number, types, and size of munici- palities, quasi-municipalities, and municipal special-purpose bodies'. An im- plicit assumption underlying structural reform hinges on the proposition that changes to the structure of local government affect the operational efficiency of municipal governance and thereby its financial viability. Put differently, it is held that it is theoretically possible to identify an optimum size for local government. Structural reform programs should thus aim at modifying the number and size of local authorities to approximate this optimum size, con- ventionally delineated in terms of population size, despite widely acknowl- edged disadvantages of this proxy measure (see, for example, Holcombe and Williams, 2009).

The claim that at least in principle it is possible to identify an optimal size for local government entities is controversial in both theoretical and empirical terms (see, for instance, Boyne 1998; Oakerson 1999; Bish 2000; Dollery, Kortt and Grant, 2012). Moreover, it has given rise to a longstanding and on- going debate between proponents of structural reform, who call for the crea- tion of larger local authorities through amalgamation, and their opponents, who dispute any systematic relationship between population size and local government performance. In essence, advocates of structural reform through consolidation implicitly hold that 'bigger is better' in local government or one or more of its more specific sub-claims: 'bigger is cheaper', 'bigger means improved services', 'bigger is more efficient', and more recently 'bigger is more financially viable'.

These inherent assumptions have formed the foundation for structural re- form programs of local government across the developed world, the over- whelming majority of which variously promise that larger local governmental structures will induce cost savings, enhance productivity, improve the quanti- ty, quality and mix of local services, boost administrative and technical ca- pacity and strategic management, facilitate more effective lobbying with high- er tiers of government, and increase financial sustainability (Dollery and Robotti, 2008). The empirical exploration of the latter claim on fiscal viability forms the basis for this Symposium.

Despite the ubiquity of structural reform through voluntary or forced mer- gers, and the frequently extravagant claims regarding its efficacy in improving financial sustainability in local government, the empirical literature is far from settled (see, for instance, Lago-Penas and Martinez-Vazquez, 2013).

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