Intermunicipal cooperation, public spending and service levels

Local governments can increase size in particular policy fields through cooperation with other local governments. This is often thought to improve efficiency, but there is little empirical evidence supporting this hypothesis. We study the case of the Netherlands, which has been a veritable laboratory of intermunicipal cooperation (IMC), using panel data for 2005–2013. We find no evidence that IMC reduces total spending of the average municipality. Indeed, IMC seems to increase spending in small and large municipalities, leaving spending in mid-sized municipalities unaffected. In one specific field, tax collection, spending may be reduced through IMC. Spending in this field is low, which may explain why total spending is unaffected. Instead of lowering spending, municipalities may have used possible cost savings as a result of IMC to improve public service levels. We do not find evidence substantiating this hypothesis, however.