Assessing the impact of municipal mergers on local public expenditure dynamics in Italy

Ever-changing territorial challenges might require administrative bodies to evolve their boundaries and functions in order to adapt to new conditions. Despite the importance of mergers, the literature on the topic is rather limited and does not provide a clear and comprehensive picture of the effects of municipality mergers for several reasons. Italy is the European country that experienced the lowest number of municipal mergers in recent years, and existing evidence does not provide a complete overview of their impact. We fill this gap by analyzing the causal effects of municipal mergers on the local public expenditure dynamics over 2016-2020. We find that the larger financial capacity was not used to reduce fiscal pressure nor the cost of local services, whereas merged municipalities increased their current expenditures - particularly in education, tourism, and transportation - with high geographical heterogeneity.