Community Structure and Co-operation

In discussions of administrative and revenue sharing reforms it is frequently argued that small-scale local governments run counter to any efficient and low-cost management of state responsibilities. This study therefore focuses on whether co-operations and mergers at the local level make for better structures of local government. Improving incentives for co-operation thus improves efficiency. Strengthening fiscal responsibility by granting more tax autonomy to local government and improving the legal frame of intercommunity co-operation must be seen as the first-best solution. Additional financial incentives can be obtained by revising the revenue sharing rules. Yet, from a fiscal policy point of view targeted funding is recommendable only when it achieves positive effects for the overall economy and minimises negative incentives for the communities.