The scale economies of Icelandic municipalities’ classified by operating issues

Abstract

It is generally believed that there is an economy of scale in the operation of municipalities, just as the economic theory assumes that applies to the operation of companies and various other organizational units. This means that the cost of providing a specific service per inhabitant decreases as more civilians benefit from it, and therefore it is cheaper to provide it in a municipality of 10,000 inhabitants than the same number in ten municipalities of 1,000 inhabitants. Until now, people have assumed that this is valid, but this is e.g. a necessary condition for municipal mergers returning lower costs, taxes, and service fees or better services. Data from the Association of Icelandic Municipalities was used to assess the economies of scale in the operation of all their issues. Such a study was conducted in 2010 with mixed results. Preliminary results on a much larger dataset indicate that economies of scale can be found in most municipal issues. The database covers all Icelandic municipalities in the years 2004-2022 and is therefore a good foundation to build on.