In Research of An Optimal Size for Local Government in Albania

Abstract

After the organization of local government along democratic lines and the tradition of organizing local government in 1992, as well as the problems created by socio-economic development, the Albanian government reviewed the organization of local administration in 2014. The implementation of the reform was carried out without the consensus of the opposition and without taking into account the constitution, which provided for taking into account the opinions of local communities for such changes. The analysis of an efficient (optimal) local unit is being done now that the two main political forces in Albania, the government-opposition, are debating the revision of the reform, based on the problems brought about by the 2014 reform. Based on the OLS model, we analyze the relationship between the average cost per capita and the residents of the current local units. The model was tested using a database covering the period 2017-2023, for a general measure of local expenditure: local public administration cost (LPAC) and service cost of local public expenditure (CE). Empirical findings evidenced a U-shaped relationship between inhabitants and the costs of local public services. Finally, we obtain an optimal size of local units of 13,047 inhabitants for the cost of local public administration and an optimal size of local units of 15,368 inhabitants for the cost of public services.