Download This PaperMerged Municipalities, Higher Debt: On Free-Riding and the Common Pool Problem in Politics
19 Pages Posted: 10 Oct 2007 Last revised: 22 Apr 2014
Date Written: August 11, 2009
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.
Keywords: common pool, free-riding, local government amalgamation, difference-in-differences
JEL Classification: D72, H73, H74, H77, R53
Suggested Citation: Suggested Citation
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