When Do Municipal Consolidations Reduce Government Expenditures? Evidence on the Role of Local Involvement

• DOI: http://doi.org/10.1111/puar.13032
• Author: Siân Mughan
• Date: 01 March 2019
• Published date: 01 March 2019

180 Public Administration Review • March | Apr il 20 19

Public Administration Review,

Vol. 79, Iss. 2, pp. 180–192. © 2019 by

The American Society for Public Administration.

DOI: 10.1111/puar.13032.

Abstract: Higher levels of government motivate municipal consolidations as a tool to increase efficiency in the local

government sector, yet research shows that consolidations typically fail to deliver the promised spending reductions.

Since mergers often require significant changes to institutional structures, one explanation is that local decision makers

can substantially influence the outcomes of the consolidation process. To explore this possibility, this article contrasts

“encouraged but voluntary” mergers with those that were “forced” on local governments in the state of New South Wales,

Australia. Results show that voluntary mergers resulted in a 10 percent decline in total per capita expenditures, but

forced consolidations failed to reduce spending across the board. The policy conclusion is that decision makers considering

structural reform should invest in obtaining the support and participation of local government decision makers.

Evidence for Practice

• Local governments that opted in to consolidation were more likely to reduce expenditures than were

governments where consolidation was imposed by a higher level of government.

• Even when consolidation is voluntary, local officials appear to be hesitant to act to reduce expenditures in

core sensitive areas such as employee costs.

• Local involvement in the merger process is key to achieving cost savings. When considering consolidation,

officials should consider how to involve local decision makers in the preparation and execution of the

proposed merger.

Siân Mughan

Indiana University Bloomington

Siân Mughan is a PhD candidate at the

School of Public and Environmental Affairs

at Indiana University Bloomington. Her

research focuses on the equity effects of

state and local tax policy, emphasizing the

role of institutions in shaping the behavior

of actors in fiscally federated systems. She

expects to receive her doctoral degree in

the spring of 2019.

E-mail: smughan@iu.edu

When Do Municipal Consolidations Reduce Government

Expenditures? Evidence on the Role of Local Involvement

Research Article

Consolidation is a popular method of

restructuring local government. In the

second half of the twentieth century,

countries as diverse as Australia, Japan, Israel,

Finland, Latvia, Denmark, Turkey, and the

United Kingdom all reduced the number of local

governments in this way. Such policies are almost

always initiated by a higher level of government

(state or federal) with the primary aim of increasing

efficiency by enabling municipalities to benefit from

economies of scale (Dollery and Fleming 2006; Fox

and Gurley 2006).

Despite the widespread popularity of mergers, there

is little empirical evidence that municipal mergers

lead to the predicted spending reductions (Bell,

Dollery, and Drew 2016; Blom-Hansen et al. 2016;

Fahey, Drew, and Dollery 2016; McQuestin, Drew,

and Dollery 2018; Moisio and Uusitalo 2013;

Reingewertz 2012; Rouse and Putterill 2005). A

question unanswered by the literature is whether

these null results are caused by a failure of mergers

to generate economies of scale or by a reluctance of

local officials to capitalize on the efficiency-enhancing

opportunities that mergers present.

There are several reasons why local decision makers

may be uncooperative with consolidation efforts.

Combining organizations of any type is difficult

and costly, local government employee morale is a

“potential landmine” (Staley et al. 2005, 17) in any

consolidation effort, and local communities often

resist state consolidation efforts that are viewed as

an infringement on local control and community

cohesion (Dollery, Goode, and Grant 2010). There

are also a variety of context-specific factors. For

example, the failure of Finnish local government

reform to reduce per capita expenditures may have

resulted from a matching grant system that negated

incentives for local government officials to decrease

spending (Moisio and Uusitalo 2013). A collective

interpretation of research on municipal consolidation

paints the picture that combining governments is

difficult, requiring significant structural changes,

transition costs, cultural workplace adjustments, and

sensitive political and personnel decisions.

This article provides evidence on the role of local

government decision makers by examining two

consolidation regimes in the state of New South

Wales (NSW), Australia. Between 1999 and 2001, the