Do municipal mergers result in scale economies? : evidence from a German federal state

The extant empirical evidence on the fiscal consequences of municipal mergers is ambiguous. We therefore revisit this question by making use of a merger reform in the German federal state of Brandenburg in 2003. In addition to identifying the causal effects of mergers on municipal expenditures by relying on a natural experiment, one novel contribution of our study is to explore the fiscal consequences of both compulsory and voluntary municipal mergers within the same institutional setting. Using a difference-in-difference design with municipality-level panel data (aggregated to post-reform territorial boundaries), we find substantial and immediate reductions in total, administrative and current expenditures per capita after compulsory mergers. Voluntary mergers, on the other hand, have smaller and less robust effects.