Common pool problems in voluntary municipal mergers |
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| Affiliation: | 1. Ifo Institute, Ifo Center for Public Finance and Political Economy, Poschingerstr. 5, D-81679 Munich, Germany;2. University of Munich, Germany;1. University of the Basque Country, School of Economics, Av. Lehendakari Aguirre 83, 48015 Bilbao, Spain;2. University of Heidelberg, Department of Economics, Bergheimer Str. 58, 69115 Heidelberg, Germany;1. Top Institute for Evidence Based Education Research, Maastricht University, Kapoenstraat 2, 6200 MD Maastricht, The Netherlands;2. Leuven Economics of Education Research, University of Leuven (KU Leuven), Naamsestraat 69, Leuven B-3000, Belgium;3. Norwegian Business School (BI), Nydalsveien 37, Oslo N-0442, Norway;4. Department of Applied Economics (APEC), Vrije Universiteit Brussel, Pleinlaan 2, 1050 Brussel, Belgium |
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| Abstract: | We analyze free-riding behavior of Finnish municipalities prior to voluntary municipal mergers. The merger process creates a temporary common pool problem, because of a delay from the initial decision to the actual merger during which municipalities stay autonomous. Using a difference-in-differences strategy, we find that the stronger free-riding incentive a municipality faced the more it increased its debt and spent its cash reserves. These funds were spent mostly on investments and current expenditures. |
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