Hoarding Policies in Local Governments Facing Potential Amalgamation

Existing research from several countries shows that there is a tendency that once amalgamation is decided and an interim period ensues, soon-to-expire municipalities feather their own nests by extraordinary last-minute spending on local services and infrastructure . Our research question is this: Can last-minute spending occur even before amalgamations are decided, driven purely by an anticipated threat of “extinction” (territorial uncertainty)? The research setting is the ongoing Norwegian local government reform. This reform started in June 2014 by a unanimous vote in the Norwegian parliament. Voluntariness was emphasized. Municipalities would receive economic subsidies if they amalgamated but state instruction would only be applied in cases where single unwilling municipalities obstructed amalgamations of high regional importance. The reform allowed the 428 municipalities more than a year to evaluate the prospects of amalgamating with neighbors of their choice and to enter into contracts of intent with potential amalgamation partners. Norway’s 19 County Governors were tasked with guiding the municipalities through this process and, by October 2016, submit county-wise recommendations to the Government about a new territorial-jurisdictional structure. These recommendations provide a basis for the Government’s proposal to the Parliament in June 2017 for a new territorial-jurisdictional structure in Norway. Spurred, presumably, by a suspicion that last-minute spending could occur also during the relatively protracted, formally open-ended reform process, driven by territorial uncertainty, The Norwegian government proposed in 2014 to place temporal restrictions on municipalities’ authority to make long-term financial obligations (loans and rental agreements). The national Parliament rejected this element of the reform. To answer the research question we apply a difference-in-difference method. We compare municipal spending before and after the reform process started across municipalities in three categories: (1) the willing fiancées, that is, municipalities that during the reform process decided voluntarily to amalgamate; (2) the unwilling fiancées, that is, municipalities that decided not to amalgamate but for whom the County Governor proposed a forced marriage; and (3) the spinsters, that is, municipalities whose decisions not to amalgamate were vetted by the County Governors. We expect last-minute spending to occur in category (2) and to a smaller extent in category (1), in both cases especially among those municipalities that will be a junior partner in the projected new, amalgamated municipalities. In our reference category (3) we do not expect to find last-minute spending. To measure the treatment variable we utilize a unique data set constructed on document analysis of contracts of intent among Norwegian municipalities and the County Governors’ proposals to the Norwegian government. To measure the effect variable last-minute spending we use 2016 vs. 2003-2015 data from the official Norwegian database for municipal accounting (KOSTRA).