Local Governments in the Wake of Demographic Change: Efficiency and Economies of Scale in German Municipalities


Geys, Benny ; Heinemann, Friedrich ; Kalb, Alexander


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URL: http://ub-madoc.bib.uni-mannheim.de/1516
URN: urn:nbn:de:bsz:180-madoc-15160
Document Type: Working paper
Year of publication: 2007
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Subject headings (SWD): Gemeindefinanzwirtschaft , Altersstruktur , Bevölkerung , Kommunale Dienstleistung , Effizienz , Skalenertrag , Baden-Württemberg
Keywords (English): Demographic change , Efficiency , Local government performance , Stochastic frontier analysis , Cost elasticity
Abstract: German municipalities are expected to suffer from (often significant) population losses in the upcoming decades. We assess these local governments’ vulnerability to the fiscal consequences of this demographic decline through two means (using a sample of 1021 municipalities in the state of Baden-Württemberg). First, we consider local government cost efficiency. This indicates that there is a substantial divergence in efficiency despite a homogeneous institutional setting, leaving at least some – mainly smaller – municipalities vulnerable to adverse demographic/financial shocks. Secondly, we estimate the elasticity of local government cost functions to population size. We find that costs rise (fall) underproportionally with population size for small municipalities, whereas this is less the case for larger municipalities. This implies that especially small municipalities are vulnerable to increasing cost pressures under declining population. The overall implication is that large German municipalities (over 10.000 inhabitants) will more easily be able to cope with the expected population decline than smaller ones, supporting a case for boundary reviews or more extensive inter-communal cooperation.
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Geys, Benny ; Heinemann, Friedrich ; Kalb, Alexander (2007) Local Governments in the Wake of Demographic Change: Efficiency and Economies of Scale in German Municipalities. Open Access [Working paper]
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