Conference Agenda

On January 30, 2006, a referendum on the amalgamations of two municipalities and fishing communities in north Iceland, Siglufjörður and Ólafsfjörður was held. The results were unequivocal; in Siglufjörður 86 percent voted for and in Ólafsfjörður 77 percent voted for. A new joint municipality was established and the first local elections in e new municipality were held in the spring 2006.

This was a part of a process starting in the beginning of the 21st century when the state government of Iceland started it. In May 2000 the parliament (Althingi) approved a proposal for a parliamentary resolution on a tunnel plan for the years 2000 – 2004. It was agreed that one of the first projects to be implemented would be a double tunnel between Siglufjörður and Ólafsfjörður connecting them by shortening the distance between them to 15 kilometers compared with over 190 km. The main argument for this conclusion was that with this new route between the villages, Siglufjörður would connect to the settlements in this Eyjafjörður region in such a way that it would become a stronger counterbalance to the capital area and the settlements in North Iceland will be significantly strengthened. The benefits of a circular connection with the coast via Tröllaskagi were also considered significant for the municipalities in the whole region.

A state support to the amalgamation of the two municipalities was granted and the amalgamation was accepted in the referendum in 2006. A new municipality had now been created with two settlement cores meaning a more integrated municipality after the tunnel came some years later, that turned out to be in October 2010. (Eythórsson 2010).

The aim of the paper is to analyse the impact and consequences of this amalgamation. The focus is on analysing how the implementation process during and particularly after the amalgamation has led to what seems to be a limited success of the amalgamation, apparent even almost 20 years later, as results from a research project show (Eythórsson & Þorgrímsdóttir, 2022 and Eythórsson & Þorgrímsdóttir, 2024). In an analysis of a survey among the citizens in 2021 there were signs of discontent with how the community had developed in the last 2 decades from the amalgamation. This was followed up with interviews and focus-group meetings in 2022. In the paper I try to focus on the post-amalgamation period and what might explain the limited success of the amalgamation.

Our analysis will focus on the analysis of the financial autonomy of the Hungarian municipalities. Hungary, started to rebuild its local government system after the Democratic Transition in 1989/90. The fragmented and 1st tier centred Hungarian municipal system had several dysfunctional elements, which were mainly based on the legally wide autonomy, but the limited resources of the task performance, especially in the case of smaller municipalities and even in the case of the county governments. The municipal system has significantly changed after 2011, when the new Constitution, the Fundamental Law of Hungary was passed. The former wide autonomy started to decrease. Our paper will firstly focus on the amendment of the regulatory ecosystem. Firstly, the legal status and the protection of the municipal asset has transformed significantly, because it became a limitedly protected subsystem of the national asset, which could be easily nationalised. Therefore, we would like to examine the different waves of the nationalisation of the municipal public service provision tasks and its regulatory background. Secondly, our presentation will analyse how the financial control of the central government has been strengthened. Thus, the enhanced legal supervision will be examined, and the new tools on the control of municipal debts introduced by the Act on the Local Self-governments in Hungary (2011) and by the Act on Financial Stability of Hungary (2011). Similarly, we would like to examine the blurring of boundaries between professional and legal control and supervision. As part of this analysis, we would like to focus on a new tool of the central government agency: the control on budgetary planning and on actual revenues of the municipal budget performed by the county (capital) government offices. Thirdly, we would like to examine the impact of the new, innovative forms of financial control. Such a new form is the obligatory use of the centralised Apllication Service Provider (ASP) system, which allows to the Hungarian State Treasury to check the municipal revenues and expenditures in a real-time system. As an enhanced part of this, we would like the enhanced elements of this centralized system. As part of the legal analysis we would like to examine the conformity of these reforms to the rules of the European Charter of Local Self-Government.

However, our presentation will mainly focus on the analysis of the regulatory framework, but we will add an analysis of the legal practice and the impact on the public service provision and budgetary framework of the municipalities, and the transformation of the economic situation of the municipalities, based on the analysis on the statistical date on municipal revenues, expenditures, and their share in the national system. Similarly, we would like to analyse whether these reforms were politically driven, and we would like to investigate the main lines of the possible political background of that transformation.

The system of local government in Italy is marked by significant institutional fragmentation: of the 7,901 municipalities nationwide, as many as 5,530 are classified as small municipalities. This administrative configuration directly affects the institutional capacity of local authorities, limiting their ability to uniformly ensure the exercise of functions and the delivery of public services across the national territory, as required by the Italian legal framework.

The need to address the challenges generated by this fragmentation has led, over the years, to several reform efforts. The most significant of these was law n. 56/2014, which (also due to its connection with a constitutional reform later rejected by referendum) resulted in an unresolved institutional framework that continues to shape the complex evolution of the local government system. Ten years on, the outcomes of this reform can now be assessed.

This paper focuses in particular on the development, over the past decade, of inter-municipal and supra-municipal cooperation for the management of functions and services. While the national regulatory framework remained in a state of apparent stasis, regional governments independently introduced differentiated regulations and policies regarding the joint exercise of municipal functions and the promotion of cooperation among local authorities. This has led to a highly heterogeneous landscape, which has contributed, not always coherently, to a reconfiguration of Italy’s administrative geography. At the same time, national policies have also addressed this issue, notably through targeted strategies aimed at strengthening the administrative capacity of the most fragile areas of the country, such as the National Strategy for Inner Areas (SNAI).

A significant step in this legal and institutional evolution is represented by Constitutional Court judgment n. 33/2019, which directly addressed the issue of the mandatory joint management of fundamental functions by small municipalities. The Court declared the unconstitutionality of art. 14, par. 28, of Decree-Law n. 78/2010, insofar as it did not allow municipalities with fewer than 5,000 inhabitants to obtain an exemption from the obligation when they could demonstrate that joint management would not result in economies of scale or improvements in service delivery. This ruling reaffirmed the constitutional relevance of the principle of autonomy, understood not merely as a formal recognition, but as a substantive guarantee of organizational self-determination, to be balanced with the demands of efficiency and coordination within a multilevel governance system.

Most recently, within this framework, a major development occurred with the repeal, by Decree Law n. 202/2024, of the obligation for small municipalities to jointly perform their fundamental functions. With this definitive repeal, joint management is now a matter of choice rather than a general obligation, with significant implications both for administrative organization and for the overall coherence of the local government system.

This contribution therefore aims to offer a critical reflection on the evolution of collaborative arrangements between local authorities, considering them as tools to enhance municipalities’ capacity to deliver services to citizens and, more broadly, as models capable of responding to the needs of functionality, differentiation, and democratic representation within the intergovernmental system.

The merging of local governments is a global reform megatrend accompanied with the promise of cost reductions through economics of scale (Blom-Hansen et al. 2016, 812; Swianiewicz et al. 2022). However, research shows that for multipurpose local governments, the expenditure effects from mergers are weak and context-sensitive, and on many occasions non-existent (Galizzi, Rota, and Sicilia 2023; Gendźwiłł, Kurniewicz, and Swianiewicz 2021; Tavares 2018; Blom-Hansen et al. 2016; Swianiewicz et al. 2022; Walker and Andrews 2013).

The crude interpretation of these findings is that the underlying reform theory is invalid and that merging multipurpose local governments does not realise economies of scale. More nuanced interpretations also exist, some of which suggest that achieving scale economies in the wake of mergers is far more likely for administrative- and other services produced at the “firm” level of the local government than for services produced at the “plant” level, for example, schools, kindergartens, and eldercare institutions (Blom-Hansen et al. 2016). Additionally, in a multipurpose context, economies of scale achieved in some policy areas are easily reallocated to other policy areas, resulting in no overall merger effect in relation to total spending (Blom-Hansen et al. 2016). Others have argued that expenditure effects depend on whether amalgamating is voluntary or mandatory (Tavares 2018, Moisio and Uusitalo 2013; Lüchinger and Stutzer 2002; Blesse and Baskaran 2016; Mughan 2019).

The aim of this paper is to study the expenditure effects resulting from voluntary mergers of multipurpose local governments. Our focus is on the overall scale effect, the temporality of scale effects, and reallocation effects across policy areas.

In addition to studying the overall effects in relation to total expenditure, we systematically analyse expenditure effects across various firm- and plant-level services and expand on the existing research by emphasising what reallocation of expenditure means for allocative efficiency. We argue that, depending on citizens’ policy preferences, a zero net effect for total expenditure may disguise increased allocative efficiency driven by reallocation of spending from less- to more salient policy areas. Besides studying the reallocation effects of voluntary mergers, we also contribute to the literature by investigating whether merger effects appear immediately or with a time lag. Given that studies of voluntary local government amalgamation reforms are rare, we also shed new light on the possibility, suggested by Tavares, “that the unfulfilled promises of amalgamations are likely to be the product of the mandatory nature of the processes rather than the amalgamation itself” (Tavares 2018, 12-13).

The research setting is Norway’s municipal amalgamation reform of 2020, which reduced the number of municipalities from 428 to 356. Our empirical analyses are based on a panel consisting of administrative data pertaining to Norwegian municipalities between 2015 and 2023. Comparing spending changes over time in merged and non-merged municipalities using a difference-in-difference design (DiD) enables us to isolate the effects of merging from other factors that affect expenditure.