Bigger Is Better: Reducing the Cost of Local Administration by Increasing Jurisdiction Size in Ontario,Canada,1995–2010

Abstract

In recent decades, the belief that larger municipalities can better capture economies of scale led to compulsory amalgamations in several countries. This article examines such a program of compulsory amalgamations in Ontario, Canada, during the late 1990s and early 2000s. By exogenously deciding on a course of municipal restructuring, and leaving a large comparison group of nonamalgamated municipalities within the same institutional framework, the Ontario reforms created a quasi-experiment on the importance of scale for local government. Using a difference-in-differences methodological approach, this article exploits the quasi-experimental setting of the Ontario reforms to examine the causal effect of jurisdiction size on the cost of local administration. The main empirical finding in this article is that increasing local jurisdiction size reduces the cost of local administration. The results provide the most convincing evidence to date that economies of scale exist in local administration and can be captured through consolidation.