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Merged Municipalities, Higher Debt: On Free-Riding and the Common Pool Problem in PoliticsHenrik JordahlResearch Institute of Industrial Economics (IFN); IZA Che-Yuan LiangUppsala University - Department of Economics; Research Institute of Industrial Economics (IFN) August 11, 2009 Uppsala University Economics Working Paper No. 2006:27 IFN Working Paper No. 679 Abstract: This paper uses the Swedish municipal amalgamation reform of 1952 to study the common pool problem in politics. The amalgams were common pools and the municipalities had incentives to free-ride on their amalgam partners by increasing debt prior to amalgamation. We find that municipalities that merged in 1952 increased their debt between 1948 and 1952 when the reform could be anticipated. The increase amounted to 52% of new debt issued or 1.5% of total revenues in the merged municipalities. But contrary to the “law of 1/n”, free-riding did not increase in common pool size.
Number of Pages in PDF File: 19 Keywords: common pool, free-riding, local government amalgamation, difference-in-differences JEL Classification: D72, H73, H74, H77, R53 working papers seriesDate posted: October 10, 2007 ; Last revised: August 11, 2009Suggested CitationContact Information
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