What happens when municipalities run corporations? Empirical evidence from 290 Swedish municipalities

Abstract

Local governments are increasingly relying on municipally owned corporations (MOCs) to provide public services. Some describe this development as a rational response to austerity challenges and emphasise the cost-efficiency of MOCs (‘the optimistic view’). Others identify complications and associate MOCs with weak supervision, lack of accountability, and corruption risks (‘the sceptical view’). Hitherto, no studies have analysed these opposing claims on MOCs in the one and same inquiry. We address this gap by focusing on Sweden, which has experienced a dramatic growth in the number of MOCs. We examine the association between the number of MOCs, the business climate, satisfaction with local government, local tax rates, and a corruption index for all 290 Swedish municipalities. Putting the ‘optimistic view’ into doubt, results indicate that municipalities relying heavily on MOCs are associated with more perceived corruption and higher taxes but do not have more satisfied citizens nor a better business climate.