The Post-Merger Fiscal Resilience Cost of Voluntary Mergers

Improved fiscal resilience is a common rationale for promoting boundary consolidations, yet empirical investigations into this relationship remain scarce. This paper examines whether municipal amalgamation reforms influence three crucial fiscal outcomes: the municipal revenue–expense balance, savings and debt levels. The paper develops and tests a novel hypothesis positing that voluntary reforms deteriorate fiscal outcomes because overcoming resistance to amalgamation requires the original units to negotiate costly post-reform concessions from each other prior to merging. To estimate the cost of voluntariness, the paper compares fiscal outcome effects of local government reforms in Norway (voluntary, implemented in 2020) and Denmark (coercive, implemented in 2007), using a Difference-in-Difference-in-Difference design. For each reform, the paper uses administrative data spanning five pre- and five post-reform years.