Optimum Territorial Reforms in Local Government: An Empirical Analysis of Scale Economies in Ireland

Abstract

Economies of scale are often the underlying rationale for local government amalgamations. Yet the international evidence on the relationship between municipal output or size (in population terms) and costs as measured by expenditure per capita is unconvincing, with doubts over whether size matters at all for the efficient provision of local public services. Given the 2014 structural reforms aimed at local government territorial consolidation in Ireland, we use pre- and post-merger data to investigate whether there is any evidence of scale economies in the Irish local government system. The econometric study finds empirical evidence of “U-shaped” cost curves for Irish local councils in 2011 and 2016. In both years the range of turning points are near the median council size, suggesting that many local authorities were operating in the diseconomies region before and after the 2014 territorial reforms and amalgamations. With more territorial changes currently planned, policymakers should look at further amalgamations only on a case-by-case basis but also at other mechanisms to deliver efficiencies, either through strategic alliances and more shared services arrangements or other ways of inter-municipal cooperation as is common in many continental European countries.