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Does Cooperation reduce Public Expenditures? Evidence from Italian Municipal Unions
1 : University of Ferrara
Inter-municipal cooperation is a widespread phenomenon among municipalities as a way to provide local public services and allowing municipalities to exploit economies of scale and internalize externalities. However, little is known about its efficiency. The purpose of this paper is to test whether there are efficiency gains. We analyze the Italian experience of Municipal Unions, using unique administrative data on municipalities located in the Emilia Romagna region, for the period 2001-2011. We adopt a difference-in-differences approach combined with matching models to estimate the causal effect of entering (or forming) a Municipal Union on local expenditures. We find that being in a Union reduces the total current per capita expenditures by around 5%, compared to municipalities not in a Union. The effect is robust to several checks, persistent and increasing up to nine years after the entrance in a Municipal Union. Moreover, we find that enters a Municipal Union is not associated with a reduction of the level of local public services, letting us to conclude that the Municipal Union is a tool that promotes efficiency in terms of local expenditure reduction.
