Fiscal outcomes arising from amalgamation: more complex than merely economies of scale

Abstract

Local government amalgamations are often prosecuted on the basis of expected efficiencies centred on capturing economies of scale. However, these economies are far from certain or straightforward. This paper draws on the extant literature to first develop a comprehensive picture of the complexity of the fiscal outcomes associated with amalgamation. We then take advantage of an eight-year panel of data and a serendipitous natural experiment to better understand the impact of amalgamation on operating unit costs. Our results confirm that the actual operating cost outcomes of amalgamation were indeed at odds with the expectations of the amalgamation architects.