The Impact of Municipal Mergers on Local Public Expenditures in Finland

This article examines the effects on expenditure of municipal mergers that took place in Finland between 1970 and 1981. We collected data on pairs of municipalities that merged after 1970, and matched these with the similar municipal pairs that remained independent using characteristics from the years immediately before the merger. We compared the changes in per capita spending after the merger in the municipalities that merged to the municipalities that remained independent over the same time period. Our results indicate that municipal mergers did not lead to lower per capita spending. In most spending categories, the per capita expenditure increased more in the merged municipalities than in the comparison group. Only in the category of general administration did the per capita spending decrease; however this decrease was far smaller than the increase in spending in other categories. For the first years of the mergers, the spending increases may be explained by transitional costs, such as acquisition of new technology, renovation of existing facilities and upward harmonization of wages and salaries. Nevertheless, it is striking to find that even ten years after amalgamation, spending was still higher in the merged municipalities compared to similar municipalities that chose to stay independent.