No. 21




Correlation of the Size of Local Governments with Economic Efficiency

16 June 2010


RiTo No. 21, 2010

  • Ave Viks

    Doctoral Student of Political Science, Tallinn University

Several local government reforms have taken place in Western countries since 1945. One of the reasons for reforms has been the concept that economic efficiency is related to the size of local government.

Although both national and international studies in the field have yielded controversial conclusions, there is a common assumption that economies of scale and economies of scope appear in local government administrative costs and in some other area, which enables to increase economic efficiency. It is difficult to determine the real gain or savings from the raise of efficiency, as raise in efficiency may resolve in better service quality or in lower costs.

The analysis of four mergers of local governments in 2005 showed that the size of a local government affects the economic efficiency of the administration of the local government – efficiency increases after mergers through lower administration costs and lower proportion of public servant per capita. Similar trends of economies of scale were also observed in the general analysis – as population increases, administration costs and the proportion of public servants decrease, and vice-versa. On the other hand, there was not sufficient empirical evidence of economies of scale in the area of leisure time.

Full article in Estonian