Fiscal Effects of Municipal Amalgamation

Benedikt Fritz (Walter Eucken Insitute and University of Freiburg)

Abstract: By examining the Fiscal Effects of the large scale municipal amalgamations in the German State of Baden-W├╝rttemberg from 1967-1975 this paper contributes to the economic literature on municipal public debt by focusing on the often neglected aspect of the appropriate size of local institutions. Using Data from 1964 to 1988 aggregated to the size of the 1111 municipalities still in existence after the amalgamation (down from 3379) and employing a difference in difference strategy we find, that amalgamation increases municipal debt and general expenditures. Expenditures for administrative staff, by contrast, shrinks in most specifications.

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