Merger Myths: A Functional Analysis of Scale Economies in the New South Wales Local Government

Abstract

Structural reform through municipal mergers is ubiquitous across the developed world and Australian local government is no exception. Advocates of council consolidation, including the New South Wales (NSW) Government in its current amalgamation program, frequently contend that larger local government entities will generate cost savings through scale economies, despite the fact that different municipal functions exhibit a wide range of production characteristics. In the NSW case, no empirical evidence has been presented in support of the claim that amalgamation will induce greater economies of scale. In order to examine this claim empirically, we undertook a functional municipal expenditure analysis for NSW using 2014 data. Our results cast considerable doubt on the scale economies claim made by the NSW Government.