Abstract

A law-drafting process and decision-making should be based on a proper evidence base of the costs and benefits of different regulatory options. Too often, however, regulatory processes lack an adequate scientific evidence base to carry out decent impact assessments. One important and useful way to strengthen the evidence base for forthcoming regulatory reforms is to accomplish ex post impact assessments of past reforms. The necessity for ex post impact assessments has been apparent, for example, in the local government sector, as in several countries the regulator has considered municipal mergers as a panacea for improving the financial position of local governments. In this study, an ex post impact assessment of Finnish municipal structure regulation is conducted. More precisely, the study analyses the impacts of Finnish municipal mergers that were accomplished during the so-called PARAS reform, which took place between 2007 and 2013. The impact assessment is focused on examining the achievement of the objectives set for the PARAS reform in terms of expenditures and vitality. The impacts of the mergers are analysed using the Difference-in-Differences (DiD) methodology on two previously quite unexplored fields in merger literature: business activities (vitality) and comprehensive schooling (expenditures). The results reveal that municipal mergers have not caused any expenditure-moderating and productivity-enhancing effects on comprehensive schooling and no positive effects on the location decisions of business activities. In summary, municipal mergers are not the proper regulatory alternative to moderate the expenditure growth of municipalities, nor do mergers turn municipalities more attractive for residents and businesses and enhance vitality in this manner.