Inter-municipal cooperation and the provision of local public goods

There is an assumption that the provision of local public services by inter-municipal jurisdictions is more efficient due to the opportunities to exploit economies of scale and reduce tax competition between municipalities. We use the staggered adoption of inter-municipal cooperation in France during the years 2002 to 2019 and show that cooperation increased local spending and tax revenues substantially during that period. Our original data on the specific missions and fiscal regimes of communities allow us to distinguish between the effects of transfer of mission(s) to the community and tax harmonization on the provision of public services. Our analysis confirms that tax harmonization has resulted in increased local public spending due to higher state grants. However, with the exception of water, we found no evidence of a negative effect on spending from the joint provision of public goods and in the case of public transport we found a sizable increase in spending as a result of its transfer to the community. Overall, we can conclude that scale economies if any are clearly dominated by a “zoo” effect i.e. extension of provision of new public services to small and formerly isolated municipalities and by a tax harmonisation effect.