SCALE ECONOMIES IN THE ADMINISTRATION OF LOCAL GOVERNMENT

Abstract: Part of the argument put forward in support of amalgamating local government authorities is that large councils have advantages of economies of scale. This article quantifies scale economies by a range of expenditure functions. It shows that amalgamation benefits may be as readily achieved through combining functions as in changing geographic boundaries. Furthermore, the study provides clear evidence that larger councils not only offer more services to ratepayers than smaller councils, but receive less support per capita than small councils from state and commonwealth government sources. This latter conclusion has important implications for those charged with the task of administering the scarce funds available through intergovernment financial arrangements.