The more the merrier? Examining the effects of inter-municipal cooperation on costs and service quality in upper secondary education

ABSTRACT

For local governments, inter-municipal cooperation (IMC) has become an increasingly common solution to tackle fiscal constraints and demographic challenges. However, in many policy areas, it is still not clear whether IMC fulfills its promises of cost savings or increased service quality. This study aims to contribute new knowledge on the effects of IMC in one of these understudied policy areas – education – and does so by employing recent developments in difference-in-differences methods. The results show that being part of IMC significantly reduces expenditures on upper secondary education. However, there are indications that decreased costs come at a price, since joining a local federation also correlates with lower grades in the cooperating municipalities.

KEYWORDS:

• inter-municipal cooperation
• staggered difference-in-differences
• local government
• economies of scale
• transaction costs
• education policy
• Sweden

JEL CLASIFICATION:

• H72 – State and Local Budget and Expenditures
• H75 – State and Local Government:Health; Education; Welfare; Public Pensions
• H77 – Intergovernmental relations
• I210 – Analysis of Education

Acknowledgments

The author is grateful for comments by Richard Öhrvall, Gissur Ó Erlingsson, Bo Persson, Emanuel Wittberg, and Eva Mörk, as well as conference attendees at the conference of the Swedish Political Science Association 2022.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data that support the findings of this study are available from the corresponding author KS, upon reasonable request.

Notes

1. This section is focused on multivariate empirical studies that analyze the cost-saving effects of IMC. It is largely based on the literature reviews in Bel and Sebő (2021) and Aldag, Warner, and Bel (2020).

2. This includes education, health care, elderly care, and social services.

3. There are no data for the two other types of IMC in Sweden: contractual agreements between municipalities, where one municipality delegates a specific task to another municipality, and inter-municipal corporations.

4. This development over time is displayed in Table A1 in Appendix A.

5. A full list of variables, definitions, and sources used in the study can be found in Table A3 in Appendix A.

6. This is done by implementing the package csdid (Rios-Avila, Sant’anna, and Callaway 2021) in Stata.

7. In Appendix B, the TWFE model is also implemented to showcase potential differences in results between the new and old differences-in-differences methods, as well as to discuss potential explanations for why these differences may occur.

8. This doubly robust estimator, as described by Callaway and Sant’Anna (2021, 205–206), has been performed using the command dripw.

9. In addition to the aggregated effect for the first seven years after treatment and the average treatment effects by the length of exposure to treatment displayed in Table 1 of the results section, the group-specific and calendar time effects are reported in Appendix C

10. There are two local federations (which include four municipalities in total) that only lasted for three and four years respectively. Therefore, the municipalities in these local federations are dropped from the main model. However, if included the estimates for the first three years of treatment show almost identical results across models. These results are available upon request.

11. In Appendix D, a placebo test is displayed, where the outcome instead is something that should not be affected by joining a local federation – the cost of emergency services.

12. It should be noted that the municipalities already part of a local federation in 1998 are not part of the main model, as they are “always treated”. Additionally, two local federations, encompassing four municipalities in total, lasted only three and four years, respectively. Consequently, the municipalities in these local federations are excluded from the main model. Nevertheless, when included, the estimates for the first three years of treatment show almost identical results across models.

13. However, it should be noted that Callaway and Sant’Anna (2021) determine the appeal of the aggregations of calendar effects to be limited, as the interpretation is complicated (see discussion on page 211).

14. It should be noted that the municipalities that were already part of a local federation in 1998 are not part of the main model, as they are “always treated” (see the reasoning behind this on page 18). Furthermore, there are two local federations (which include four municipalities in total) that only lasted for three and four years respectively. Therefore, the municipalities in these local federations are dropped from the main model. However, if included the estimates for the first three years of treatment show almost identical results across models.

Additional information

Funding

This work was supported by Formas (Swedish research council for sustainable development) under Grant number 2020-01832.