Australian local government amalgamation: A conceptual analysis population size and scale economies in municipal service provision

Abstract

A common argument advanced by proponents of Australian local council amalgamation proposals is that 'bigger is cheaper' due inter alia to the existence of substantial economies of scale in local council service provision. This argument typically asserts that local councils with larger populations can provide municipal services at lower costs per unit of output than local authorities with smaller population bases, thereby conflating population size with the theoretically distinct concept of scale economies. This short paper examines this argument in the light of standard economic theory. We conclude that it is fallacious to use population size as a proxy for scale economies in Australian local government.