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Electoral vulnerability and size of local governments:

Evidence from voting on municipal mergers

Ari Hyytinena Tuukka Saarimaab Janne Tukiainenc

aJyväskylä School of Business and Economics, University of Jyväskylä. P.O. Box 35, 40014 University

of Jyväskylä, Finland. Email:[email protected]. bGovernment Institute for Economic Research VATT. P.O. Box 1279 (Arkadiankatu 7), FI-00101

Helsinki, Finland. Email: [email protected]. cCorresponding author. Government Institute for Economic Research VATT. P.O. Box 1279

(Arkadiankatu 7), FI-00101 Helsinki, Finland. Email:[email protected]. Tel: +358295519 451.

Helsinki Center of Economic Research. Arkadiankatu 7, 00100 Helsinki, Finland.

Abstract

We analyze how anticipated changes in the electoral vulnerability of municipal

councilors affect their voting behavior over municipal mergers. The electoral

vulnerability changes due to a merger because it changes the composition of political

competitors and the number of available seats in the next election. We use this variation

for identification and find that the smaller the increase in the electoral vulnerability of a

councilor, the more likely he is to vote for the merger. The documented effect is not

driven by the behavioral response of the voters, or by party-line considerations. The

councilors’ desire to avoid personal electoral competition may lead to sub-optimally

small municipalities from the local citizens’ point of view.

Key words: Electoral vulnerability, local politics, municipal mergers

JEL classification numbers: H11, H77, D72

1. Introduction

The efficient provision of local public services depends on the number and size of local

jurisdictions, such as municipalities and school districts. Boundary reforms and regional

amalgamations are a means to change them, but the required adjustments are often

conflict-prone and difficult to achieve politically. It is thus natural to ask, do politicians

want to reset the boundaries of their local jurisdictions, if given a chance to cast a vote

in favor of such a change? If not, why?

The economics literature on the endogenous formation of political jurisdictions

concentrates on the determinants of jurisdiction size (e.g. Miceli 1993, Alesina and

Spolaore 1997, Ellingsen 1998, Bolton and Roland 1997, Casella 2001). The core

theoretical result from this literature is that the optimal size is determined by a trade-off:

The existence of economies of scale and inter-jurisdictional spillovers favors large

jurisdictions while regional heterogeneity in preferences over local public goods favors

small jurisdictions.1 This trade-off appears to be real, as people seem to be willing to

forego the scale benefits in order to avoid heterogeneity in their local jurisdictions (e.g.,

Brasington 2003, Alesina et al. 2004 and Gordon and Knight 2009, Hanes et al. 2012,

Saarimaa and Tukiainen 2014).

A clear gap in this literature is that both empirical and theoretical work abstracts

away from possible political agency and electoral concerns in the formation of local

jurisdictions and resetting of their boundaries. In this paper, we put this question on the

center stage. We do so by asking how local politicians’ (municipal councilors) re-

1 A large number of local jurisdictions can be optimal also due to yardstick competition, if there are informational asymmetries between politicians and voters (Besley and Case 1995), or due to tax competition, if the public sector is a revenue maximizing leviathan (Brennan and Buchanan 1980, Edwards and Keen 1996). Perroni and Scharf (2001) show that tax competition can lead to larger jurisdictions in equilibrium.

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election concerns affect, independently of voter preferences and their party-line

pressures, whether they vote for or against a municipal merger and to what extent their

concerns of (increased) electoral vulnerability are reflected in the resulting municipal

structure.

A municipal merger may affect a councilor’s electoral vulnerability in future

elections in a number of ways. First, a merger is a policy decision that affects the

service-tax bundle provided by the municipality. Voters may punish or reward a

councilor for these changes in policy. Second, a merger changes the boundaries of

electoral districts, and thus, has a direct effect on electoral competition and electoral

vulnerability of a councilor. The way this latter channel works depends on the

particularities of the election system.

This paper’s empirical context is a multi-party, open-list proportional

representation (PR) system where, after having been elected but with an eye to future

elections, local politicians decide whether or not to vote for a municipal merger. There

are three potential levels of political decision-makers in such a system: First, a

municipal council may vote according to its true electoral incentives, representing the

interests of the pre-merger municipality, and thus the preferences of the councilors’

current constituency. The second level is political parties, at the national and also pre-

and post-merger municipality levels. In our context, the parties and the political

coalitions to which they belong can both gain and lose local political power due to the

proposed merger. These party-line considerations may largely determine whether the

councilors vote for or against the merger. Third, it may be the self-interest of the

councilors that drive their voting decision. For example, a councilor may want to

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prevent the merger from taking place if it is expected to increase his electoral

vulnerability in the future elections.

Taken together, the foregoing suggests that there is a myriad of interdependent

electoral, party and individual effects which determine whether incumbent local

politicians want to vote for a change in the boundary of their local jurisdictions. We aim

at quantifying one of these effects, the behavioral response of the incumbent politicians

to the (anticipated) electoral consequences of a change in the boundary. We estimate

this councilor-level response by using data from a recent wave of municipal mergers in

Finland and by focusing on the within municipality and within party-line variation in

the data.

The voting decision is directly and predictably linked to the councilors’ electoral

vulnerability because if the merger goes through, it changes not only the composition of

voters, but also the set of political competitors and the (relative) size of the municipal

council. We show how these changes can be captured empirically and explore whether

they affect the voting decisions of local politicians. In this regard, we follow the recent

work by Blais et al. (2011) and Fiva and Folke (2014), who study electoral reforms and

estimate their mechanical (i.e., how the reforms change the way votes are transformed

into seats for a given vote distribution) and behavioral (i.e., how voters, parties or other

political actors react to the reforms) effects on ex post electoral outcomes.2 We ask,

instead, do the merger-induced mechanical effects have a feedback effect on the

councilors’ voting decisions.

Our key empirical finding is that a councilor is less likely to vote for a merger if

his electoral vulnerability increases in the merger state relative to the status quo of no

2 This taxonomy dates back to Duverger (1954), but he used the term ‘psychological’ instead of ‘behavioral’.

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merger. We find, in particular, that the anticipated changes in the composition of voters

and political competitors are important in explaining this councilor-level behavioral

response. This result is robust to holding electoral (municipality-level) and party-line

(party-municipality -level) merger incentives constant. The source of the councilor-level

desire for maintaining the status quo is thus neither the councils’ (uniform) electoral

incentives at large, nor party-line considerations. Our findings imply that when

boundary reforms are delegated to the local level, local politicians’ desire to avoid

political competition may lead to too little consolidation, and thus to jurisdictions being

too small from the point of view of the economy at large. We conclude that the self-

interest of local politicians is, at least on the margin, a source of resistance to

consolidation and may lead to sub-optimally small municipalities.

The remainder of this paper is as follows: In the next section, we provide a brief

literature review. We describe the institutional framework and our data in Section 3. In

Section 4, we discuss the various mechanical and behavioral effects that a merger may

have on different political actors. We present our empirical approach in Section 5 and

report our results in Section 6. Section 7 concludes.

2. Literature Review

Besides the literature on the endogenous formation of political jurisdictions (as

discussed in the introduction), our paper builds on four other branches of the prior

literature in economics and political science.

The first branch of papers has evaluated the effects of mergers both from pre- and

post-merger perspective. The pre-merger effects are related to common pool problems

after a merger is decided, but before it comes to effect. For example, Hinnerich (2009),

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Jordahl and Liang (2010) and Saarimaa and Tukiainen (2013a) find that merging

municipalities free-ride on their merger partners by increasing debt prior to the merger

taking place. Another group of papers has analyzed the effects of mergers on post-

merger outcomes. For example, Reingewetz (2012) and Blom-Hansen et al. (2014) find

that mergers decrease local government expenditures, while Lassen and Serritzlew

(2011) and Saarimaa and Tukiainen (2013b) document that mergers have an effect on

political efficacy and voting behavior.

The second branch of the literature deals with the disciplinary effects of elections

and the way re-election concerns affect politicians’ policy choices. Much of the earlier

empirical literature builds on term limits, which make incumbents ineligible to run for

re-election after a certain number of terms in office. The typical finding is that term

limits have clear effects on implemented policies and politicians’ effort (e.g. Besley and

Case 1995, Dal Po and Rossi 2011, Ferraz and Finan 2011). This suggests that elections

discipline politicians.

The third related branch of the literature builds on Duverger’s (1954) insights and

focuses on the estimation of mechanical and behavioral effects of electoral rules and

reforms. Lijphart (1990) studies cross-country variation in electoral systems and

outcomes from 1945 to 1985 and argues that the mechanical effects of the electoral

system variables are large. Benoit (2001) finds that both district magnitude and the

electoral formula influence the number of parties in Hungarian local elections. Cox et

al. (1999 and 2000) demonstrate, in turn, that electoral rules affect the number and

characteristics of intraparty factions in Japan. Blais et al. (2011) use variation in the

electoral systems in nine elections in Switzerland and four in Japan to distinguish

between the mechanical and psychological effects of the electoral systems on the

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effective number of parties. They find evidence for behavioral responses by parties and

voters, but the mechanical effects appear to dominate in many cases. Fiva and Folke

(2014) study a nationwide change in the seat allocation method in Norway, which

mechanically raised the proportionality of the seat allocation. They find evidence both

for mechanical and behavioral effects, but the relative importance of the two appears to

depend on the outcome. Fiva and Folke also found evidence for a strategic response by

the incumbent politicians, who appear to reduce the size of the local council in order to

mitigate the effects of the reform-induced increase in proportionality.

The fourth branch of the literature studies the political and economic

consequences of redistricting (including gerrymandering) and annexation in a

majoritarian election context. The papers in this branch have explored both the effects

of such boundary reforms on electoral outcomes (e.g., Gelman and King 1990, 1994)

and on politician behavior, especially in the US (e.g., Glazer and Robbins 1985 and

Levuax-Sharpe 2001, Boatright 2004). This US evidence shows that the effects of

boundary reforms and redistricting depend in a subtle fashion on by whom and how the

district boundaries are redrawn (e.g., Gelman and King 1994, Carson and Crespin 2004)

as well as on how easily the politicians can anticipate and prepare for the political

consequences of redistricting (Boatright 2004). The tradeoffs are real and severe, as

redistricting may for example lead to a loss of the incumbency advantage (Desposato

and Petrocik 2003).3

3 Coate and Knight (2007) consider socially optimal redistricting and the role of electoral competitiveness therein. Districting and resetting of the local government boundaries have also been found to shape policy outcomes (Ansolabehere et al. 2002, Besley and Preston 2007).

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We contribute to these four branches of the prior literature by estimating the

feedback effect of a reform-induced mechanical change in the electoral vulnerability on

the ex ante behavior of local politicians in the context of a PR system.

3. Institutional background and data

Our analysis uses data from Finnish municipalities and concentrates on the behavior of

municipal councilors who were elected in 2004 for a four year term and who voted for

municipal mergers that eventually took (or, if turned down, did not take) place between

2007 and 2009. The next elections were held in October 2008 and they took into

account the mergers that would then take place subsequently at the start of 2009.

3.1 Local decision making and municipal mergers

In Finland, public goods and services are provided by two tiers of government where

municipalities constitute the local level. The Finnish public sector is highly

decentralized and municipalities are responsible for providing more services than in

most other countries, including social and health care services and primary education.

Municipalities are therefore of considerable importance to the whole economy, with the

GDP share of municipality spending being roughly 18%.

During the past decade smaller municipalities have found it increasingly difficult

to provide the large scale of services that they are responsible for. These difficulties are

due to many things, such as population aging and internal migration from rural to urban

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areas. As a result of this, there has been a constant pressure to reduce the number of

municipalities in recent years.4

Each municipality has a council which is responsible for all major strategic and

financial decisions.5 Councils are elected every four years using open list elections,

which apply the D’Hondt method. Parties select the candidates, but voters determine

their order within the lists.6 Each municipality has only one electoral district. Council

size is a step function of the municipality’s population and is determined by law as

follows: 13, 15 or 17 for municipal population 2000 or less, 21 for 2,001–4,000; 27 for

4,001–8,000; 35 for 8,001–15,000; 43 for 15,001–30,000; 51 for 30,001–60,000; 59 for

60,001–120,000; 67 for 120,001–250,000; 75 for 250,001–400,000 and 85 for over

400,000.

Being a member of a municipal council is a part-time job, with meetings taking

place monthly. There are limited pecuniary rewards from having a seat in the council.7

Of course, holding a council seat can also generate other rewards, such as prestige,

better chances of getting elected in the national parliamentary elections, improved non-

4 In 2005, the central government initiated a plan that aimed at strengthening the operating environment of the municipalities. The plan aimed at reforming municipal revenue structure and making the provision of municipal services more efficient. In 2007, a provisional law was enacted, stating that mergers between municipalities are the main tool for achieving sounder municipalities. However, the merger decisions were left to be made voluntarily by the municipality councils. 5 The council also chooses the municipal board, which has a preparatory role. The composition of the board is based on party shares in the council, i.e., each party in the council get seats in the municipal board according to their share of council seats. 6 In the open list D’Hondt method, each voter casts a single vote to a single candidate. Parties gain seats based on the sum of votes that their candidates get. Within the parties, the seats are allocated by ranking the candidates based on their individual votes. There are eight parties in the Finnish parliament, which also dominate the municipal politics. Some local single-issue groups exist as well. The parliament and municipal councils are dominated by the three biggest parties with a combined overall share of votes of around 60 percent in both 2004 and 2008 elections. 7 The reward consists mainly of meeting fees, which vary roughly from 50 Euros to more than 300 Euros per meeting. There are also separate fees for subcommittee meetings, such as the subcommittee of education or health care. Council and municipal board chairmen also get an annual fee on the top of the basic meeting fees. All the fees increase with municipality size.

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political labor market prospects and the ability to move policy closer to their preferred

point (e.g. Besley and Coate 1997, Lundqvist 2011, Kotakorpi et al. 2013).

Mergers between municipalities are voluntary and the municipality councils are

allowed to decide which potential mergers they consider. A typical merger process is as

follows: After an initial feasibility study, the municipal boards make a proposal of the

merger to the municipal councils. This proposal is voted on by the councils. In about

half the cases, the potential merger includes more than two municipalities. The merger

votes are in most cases conducted simultaneously among the municipalities

contemplating a merger.8 If the proposed merger gains a majority in all the participating

councils, the merger goes through. If not, it is cancelled and the municipalities continue

as they were.

If the merger goes through, the next elections are organized so that the entire new

municipality constitutes a single electoral district (i.e., there are no regional quotas, or

equivalent, for the pre-merger municipalities). We are thus analyzing redistricting

across many at-large elections. This environment differs from e.g. the U.S. congress,

where voting is by electoral districts and where redistricting refers to the process of

redrawing their boundaries.

3.2 Data sources

We have collected data on how each individual councilor voted in the merger votes.

These data were collected separately from each municipality and were often available

online. We have linked these voting data to the data on municipal elections held in

8 The timing is not entirely simultaneous, because the lengths of council meetings differ. Moreover, it seems that in some rare cases, the voting was sequential on purpose.

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2004. These elections data were provided by the Ministry of Justice.9 We focus on

councilors representing the eight largest parties. Our final data consist of 3,804

individual councilors coming from 135 municipalities and 59 (potential) municipal

mergers. Out of the 135 municipalities in our data, 99 eventually underwent a merger.10

Besides data on the election outcomes, such as the number of votes the councilors

received in the 2004 elections, we have data on the councilors’ age, gender, and whether

they were elected in the 2000 elections. In addition to this, we have augmented the data

with variables describing different municipal characteristics, such as population and

mean income, provided by the Statistics Finland. Moreover, we used geographic

information system techniques and Statistics Finland’s Grid Database to calculate the

mean distance of municipal population to the center of the municipalities that

contemplate a merger. We report descriptive statistics for these variables in Table A1 in

Appendix A.

4. Mechanical and behavioral effects in municipal mergers

Municipal amalgamations are boundary reforms that change the size and political

landscape of local jurisdictions. If an amalgamation goes through, it reduces the size of

the municipal councils relative to the size of the municipalities, changes the

composition of voters, and mixes the set of political competitors from the merging

municipalities. It thus shares features of electoral reforms and redistricting (and also of

9 The data are managed on behalf of the Ministry of Justice by a commercial operator (Tieto Oyj). 10 Between 2004 and 2008 elections, 130 municipalities decided to merge. We were unable to collect individual councilors’ voting behavior from 31 merging municipalities. In a few cases, the same municipality was involved in two separate merger votes during the time period. These were, however, separate merger processes. For example, the city of Rauma underwent one merger in 2007 and another in 2009.

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annexation) and is likely to have an effect on electoral outcomes. Building on this and

on Duverger (1954), Blais et al. (2011) and Fiva and Folke (2014), we predict that the

resetting of municipal boundaries have the following mechanical and behavioral effects.

Mechanical effects: The resetting of municipal boundaries results in two

mechanical effects, which reflect how the reform changes the way votes are transformed

into seats (when the political actors do not change their behavior). First, if a municipal

amalgamation takes place, it increases the size of the local jurisdiction. The resulting

change in the council size increases the vulnerability of marginal seats, because council

size is, by law, an increasing but concave function in the population of the

municipalities. From now on, we call this Council size mechanism. Second, the resetting

of municipal boundaries mixes the set of candidates competing against each other for

the seats in the post-reform council. Henceforth, we call this Competition mechanism.

We call the sum of the two Total mechanical change.

To see why both Council size and Competition mechanisms are at work, consider

the (open-list) D’Hondt method, where voters cast votes to individual candidates and

where the available seats are allocated to multiple parties based on the total vote count

of the parties’ candidates. Furthermore, in the D’Hondt system, a candidate’s election

outcome depends not only on his personal and his party’s number of votes, but also on

how the votes are distributed to the other candidates and parties. This means that a

candidate can be a close competitor to multiple candidates both from his own party and

also from the other parties.

In such a seat allocation method, the two mechanical effects affect both parties

and individual councilors. The reason for this is that when at work, Council size

mechanism mechanically removes one or more of the marginal seats. Besides having an

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adverse impact on a single marginal candidate, this reduction may disproportionately hit

those parties that have multiple marginal candidates on their lists.

Competition mechanism in turn reflects how merging two or more given pre-

merger vote distributions of the merging municipalities affects the vote shares of

candidates and parties, and thus the election outcomes. These resulting changes affect

competition both between and within parties. First, the number of seats that party A gets

can change either when party A’s own vote share changes, or when party B’s vote share

increases and party C’s decreases, even if A’s vote share remains the same. These party

level effects may affect individual candidates in different ways. Second, the election

outcome for a candidate depends on his within party rank. A merger may profoundly

affect the within party rankings, especially for the candidates that come from relatively

small municipalities. This means that changes in the vote distribution and composition

of the party lists can change the election outcome in a complex way both for the

candidates and for their parties.

It is worth pointing out that Competition mechanism is not explicitly driven by an

electoral rule, but Council size mechanism is. Council size mechanism is thus a policy

variable, determined at the national level. Indeed, in the first elections after the merger,

some municipalities were allowed temporarily to use a larger council size than the

council size step function would indicate. This suggests that introducing a less concave

council size schedule might be an instrument to induce more mergers and that Council

size mechanism may be more salient to the councils, parties and councilors. If it is, it

could even be a source of conformity in the voting behavior. These observations provide

a motivation for us to try to distinguish between the effects of the two mechanisms.

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Ex post voter, party and councilor behavioral effects: The resetting of

municipal boundaries may lead to an ex post behavioral effect by voters, parties and

councilors who in the subsequent election decide how to adjust and react to the merger.

For example, there can be an ex post behavioral effect by the councilors, as the resetting

of municipal boundaries may change their willingness to rerun for a seat as well as their

campaign efforts in the post-merger election, as compared to the state of affairs when

the boundaries remain intact. One reason for this is that resetting the municipal

boundaries may cut some voters loose from their old representative in a heterogeneous

way (as e.g. the work by Desposato and Petrocik 2003 suggests). Moreover, parties,

and/or voters may adjust strategically (as e.g. the work by Boatright 2004, Fiva and

Folke 2014 and Saarimaa and Tukiainen 2013b suggests). Voters and parties may, for

example, adjust to the new political landscape by e.g. reducing turnout or entry.

Ex ante voter, party and councilor behavioral effects: Voters, parties and

councilors can also respond to the proposed amalgamations ex ante, before they are

decided upon. Voters may, for example, have been forward-looking and voted with the

subsequent consolidation in mind in the municipal elections that preceded the merger

votes. Parties, representing the supply side of politics, can both gain and lose their

political power due to the proposed amalgamations.11 Because parties are forward-

looking, too, this can lead to various party-line considerations both at the local and at

the national level. Such considerations may even determine how party-loyal councilors

vote in the merger votes.

11 See e.g. Howitt and Wintrobe (1995), who consider the possibility of inefficient political inaction in a majoritarian, two-party system. A main driver of the desire for the status quo is the desire of the political parties to avoid electoral competition. Such party-considerations may well characterize a multi-party, PR system as well.

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Last, but not least, there is room for an ex ante behavioral effect by individual

councilors, which mirrors their proactive behavioral response to the anticipated political

consequences of the change in the municipal boundaries. This refers to the possibility

that the self-interest of the individual councilors drives their voting decision. For

example, a councilor may want to prevent the merger from taking place if it is expected

to have an adverse effect on his electoral vulnerability. We focus on quantifying this ex

ante behavioral effect of the councilors. This requires that we can determine how the

mechanical effect changes the electoral vulnerability of the municipal councilors and

how this (anticipated) change in the vulnerability then feeds back to the councilors’

voting behavior when they vote for the proposed merger.

5. Econometric approach

5.1 Econometric specification

To analyze how anticipated changes in the electoral vulnerability of individual

municipal councilors affect their voting behavior in the merger votes, net of ex ante and

ex post party-line considerations and the councilors’ electoral incentives at the

municipal or merger level, we consider the following econometric model

(1) 1 0( ) ,iikm km iki mp pv uμ δ= −+ +

where vikm equals one if councilor i representing party k from municipality m votes in

favor of the merger (and is zero otherwise); μkm denotes a set of fixed effects; (p1i − p0i)

refers to Total mechanical change and is thus our measure for the anticipated effect of

the merger on electoral vulnerability that is due to Council size and Competition

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mechanisms; and uikm is an error term. For some specifications, we augment (1) to

include a vector of control variables, xikm.

We are interested in parameter δ, which captures the effect of Total mechanical

change in electoral vulnerability on councilors’ voting behavior. We focus on the

mechanical change for two reasons. First, it is possible to measure the anticipated

mechanical effects, whereas it is hard to capture all of the above listed behavioral

responses empirically. When measuring how the electoral vulnerability changes (i.e.,

when calculating Total mechanical change; see below) due to the amalgamation, we use

the vote distribution from the 2004 election, which does not mirror any ex post

reactions.12 This means that we can abstract away from the myriad ex post behavioral

reactions and adjustments by the different actors. Second, we focus on the mechanical

change also because it is harder for the incumbent politicians to predict how voters (or

other actors) react in the subsequent 2008 election than to anticipate the likely effects of

the mechanical change. This is important, because the councilors are unlike to react to

something that cannot be reasonably anticipated.

Indeed, anecdotal evidence suggests both that re-election concerns are a source of

concern among local politicians who contemplate mergers and that the mechanical

change corresponds to public perceptions about how a merger would affect re-election

prospects. The anecdotal evidence to which we refer here comes from i) what a number

of councilors have explicitly shared with us in confidential discussions and from ii)

what can be inferred from public discussion, both in national and local media. In

particular, at the time when mergers were contemplated some newspapers calculated

12 The party-lists and vote distribution of the pre-merger election does not contain information on ex post voter or party reactions, whereas those of the subsequent (post-merger) election do. The latter information was not available to the councilors when the mergers were voted upon.

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what the post-merger councils would look like given the vote distribution from the pre-

merger elections. This is the type of exercise we do, except that we explicitly allow for

uncertainty in the election outcomes when measuring electoral vulnerability (see

below).13

In what follows, we first discuss in detail how we use fixed effects to control for

the heterogeneous preferences of voters and politicians and for how the different

political actors in the PR system influence the merger votes. We then explain how we

measure the councilor level electoral vulnerability.

5.2 Heterogenous policy preferences and party-line effects

We include the fixed effects, μkm, in various combinations and at various levels in order

to control for the possibility that voters and politicians have heterogeneous preferences

and, in particular, to account for how the different political actors in the PR system

influence the merger votes.

First, we use merger-level and party fixed effects. The former allow for a shared

view by the councils of the municipalities about the desirability of a merger.14 These

merger-level fixed effects account, for example, for the resemblance of policy

preferences in the involved municipalities. It is likely that such resemblance increases

the probability of a merger getting uniform support among the councilors in all the

councils who vote about a particular merger. The merger-level fixed effects also allow

for the possibility that the expected gains, such as the anticipated economies of scale in

the provision of local public goods, are so great (or so miniscule) for some of the

13 We document this more carefully in Appendix B. 14 The merger-level fixed effects refer to the local jurisdictions that would result from the municipal mergers if they go through.

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mergers that the councils of the merging municipalities have a shared view about the

merger and vote therefore uniformly. We include party fixed effects to allow for a

national party-line vote. Most of the parties that are represented in the municipal

councils are also represented in the national politics. The party fixed effects allow for

the possibility that all council members of a political party vote in the same way,

irrespectively of where they live. A party may have a nation-wide policy against or for

municipal mergers, depending on whether the party’s leaders think that the mergers

benefit it politically or not.

Second, instead of allowing for merger and party fixed effects separately, we use

party-merger fixed effects. These fixed effects allow each party to have a merger-

specific effect on the councilors’ voting outcome. This means that merger-level party

politics can be a decisive factor for the local consolidation of municipalities. For

example, it is possible that the voting behavior of all councilors from party k depends on

the anticipated political strength of party k in the proposed merger.

Third, we can go deeper and allow for municipality fixed effects (in place of the

merger fixed effects). A municipal council may vote according to its true electoral

incentives, representing the interests of the pre-merger municipality, and thus the

preferences of the councilors’ current constituency. We allow for this by using the

municipality fixed effects, as they account for example for the fear that the merger will

result in closing down of local services (e.g. elementary schools) in the municipality

contemplating the merger.15 When we have both the municipality and (national) party

15 It is important to control for this fear, because it may be correlated with changes in electoral vulnerability. It is, if the councilors of the smaller municipalities are more likely to lose their political power as a result of the merger. See e.g. Knight (2008) on the link between regional representation in a legislative body and the geographic distribution of centralized spending.

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fixed effects in the model, we estimate the councilor-level responses only using the

within municipality and within party-line variation in the data.

Fourth, instead of allowing for municipality and party fixed effects separately, we

can use party-municipality fixed effects. These disaggregated fixed effects allow

municipal-level party politics to be a decisive factor for the voting behavior of the

councilors. For example, it is possible that all councilors from party k in municipality m

think that their political strength decreases if the proposed merger takes place. If party-

line considerations at the municipal level determine how councilors vote, party-

municipality fixed effects explain (most of) the variation in the voting data.

5.3 Measuring electoral vulnerability

As Folke (2014) has stressed, measuring closeness of elections − and thus electoral

vulnerability − is not straightforward in PR election systems. We nevertheless need such

a measure, because in equation (1), (p1i − p0i) refers to Total mechanical change in

electoral vulnerability due to amalgamation. In alternative specifications, we also want

to decompose Total mechanical change into Council size and Competition mechanisms.

To be more precise, we define Total mechanical change in electoral vulnerability

for councilor i as (p1i − p0i), where p0i and p1i are proxies for the anticipated security of

the seat of the councilor in the next (2008) elections in the no-merger state (p0i) and the

merger state (p1i), respectively. We calculate these proxies as if all the voters voted or

abstained as they did in the 2004 (pre-merger) elections, but mimic uncertainty related

to the election outcomes using a bootstrap procedure, as explained below.

19

Bootstrap procedure

We construct p0i and p1i by using a bootstrap elections procedure introduced by

Kotakorpi et al. (2013), which allows us to create a set of counterfactual re-election

prospects.16 The procedure uses information on the identity of the candidates in the

2004 election, the vote distribution from the 2004 election and the number of available

seats in the different merger states based on the council size rule. Because we focus on

the councilors’ reaction to the anticipated mechanical change, we do not use

information about the post-merger 2008 elections in the bootstrap procedure. This

means, in particular, that the councilors’ ex post decisions to run for a council seat in the

subsequent 2008 election are not used.

To calculate Total mechanical change, we implement the bootstrap procedure

twice, once for two different scenarios. First, we consider a scenario in which all

mergers are assumed not to go through. For this scenario, we use the 2004

municipalities as the constituencies, irrespectively of whether the merger actually took

place or not. For the second scenario, we proceed as if all the mergers took place. The

hypothetical post-merger constituencies are constructed by allowing both the set of

candidates and voters as well as the number of available council seats to mirror the

properties of the post-merger entity.

For both scenarios, the bootstrap procedure is run in three steps:

Step 1: For each bootstrap round s, we sample votes with replacement for each

candidate from the vote distribution of the 2004 municipal election. The sampling

probability of a vote for a candidate is the share of the votes that he or she received in

16 The use of simulated elections to generate counterfactual outcomes is commonplace (e.g. Odendahl and Freier 2012, Chen and Rodden 2013). Kotakorpi et al. (2013) use the procedure to identify close winners and losers in a proportional election system for an RDD analysis. This corresponds to p0i in our analysis.

20

the 2004 election, but, crucially, the share is different in the scenario in which none of

the mergers is assumed to take place as compared to the scenario in which all of them

are assumed to take place. During each bootstrap round, we draw as many votes as were

given in the real 2004 elections to produce a distribution of votes over the candidates.

The resulting set of votes varies across the bootstrap repetitions within each of the two

scenarios due to randomness, but also differs systematically between the two scenarios,

because the sampling probabilities are different.

Step 2: We use the sampled votes to calculate a hypothetical election outcome

using the actual election rules for each bootstrap round. We do this differently for the

two scenarios: For the first scenario, we use the 2004 municipalities as the

constituencies to determine whether a candidate gets elected in a given bootstrap round.

We do these calculations for the second scenario by assuming that all the mergers took

place.

Step 3: We repeat the bootstrap elections of Step 1 and 2 many times (S = 10,000)

and count the share of times a particular candidate is elected both in the scenario in

which none of the mergers takes place and in the scenario in which all of them take

place. The former gives us p0i and the latter p1i. We then obtain a measure for Total

mechanical change in electoral vulnerability as (p1i − p0i).17

Total mechanical change in electoral vulnerability mirrors, as mentioned above,

both Council size mechanism (reduction in the relative number of seats) and

Competition mechanism (change in the set of candidates and voters). We can make use

of these sources of variation to further dissect the mechanical change into its sub-

components. To identify the latter of these two sub-components, we repeat the above

17 Further details of the procedure are explained in Appendix B.

21

bootstrap procedure as if all the mergers had taken place, but with the new council size

artificially set equal to the sum of the pre-merger council seats (instead of its actual

legal size).18 We call the resulting variable so that ( − ) gives us a measure for

Competition mechanism. This change in electoral vulnerability arises, because the set of

candidates and the distribution of votes over parties and candidates are different in the

event the merger takes place, as compared it not taking place, even if the election

outcomes are calculated in both cases using the vote distribution from the 2004

elections. Finally, subtracting Competition mechanism from Total mechanical change

gives the change in electoral vulnerability that is due to the change in the number of

council seats. This gives us Council size mechanism. It is equal to

( ) ( ) ( )1 1 1 0 1 0i i i i i ip p p p p p− = − − − . We provide further information of the bootstrap

procedure and a concrete example in Appendix B.

Descriptive statistics of changes in electoral vulnerability

The histograms for the electoral vulnerability variables are presented in the three panels

of Figure 1. Notice that this figure includes only the elected councilors that voted upon

the mergers, but not the candidates that were not elected in the 2004 elections.

The histogram of p0i is displayed in Panel A. It shows that the probability

distribution has a lot of mass on the right. This means that it is very likely that many of

the existing councilors would be re-elected in the 2008 election, if it was organized so

that the contemplated merger did not take place and voters behaved like in the 2004

election. The reason for why the probability of re-election is less than one for some of

18 This means that each candidate “competes” in these bootstrap elections in the new, merged constituency with all the candidates from the merging municipalities, but with the twist that the overall number of available seats is not reduced as the law would require.

22

the councilors is related to them being marginal (i.e., lucky) and subject to electoral

competition.

The histograms of and p1i are displayed in Panels B and C, respectively. They

show, in turn, that holding other things constant (but for the merger outcomes), the

contemplated mergers have a large mechanical effect on the election outcomes. The

mass on the left of these histograms means that it is likely that a number of the existing

councilors would not be re-elected in the 2008 election if it was organized so that the

contemplated merger took place and voters behaved like in the 2004 election. A closer

look at the data showed that these potential drop-outs are typically councilors from the

smaller municipalities that are contemplating a merger with a larger municipality.

[Figure 1 about here]

In Figure 2, we display the sub-components of Total mechanical change. First, as

the panel titled B–A shows, Competition mechanism decreases the electoral

vulnerability of some candidates, but hurts the most. The fact that electoral vulnerability

decreases for some is mainly due to the larger council size used in the bootstrap

elections for .19

Second, Council size mechanism is shown in the panel titled C–B. This

mechanism hurts most of the candidates, but, as expected, benefits no one. Third, Total

mechanical change is displayed in the panel titled C–A. It shows that the merger

increases the electoral vulnerability of most of the candidates, but actually benefits

19 The prior literature on redistricting suggests (e.g., Gelman and King 1994, Desposato and Petrocik 2003, Carson and Crespin 2004) that in a majoritarian election system, changes in the population of voters and/or in the mix of political competitors can either increase or decrease the electoral vulnerability of a given councilor.

23

some rare candidates. Those who appear to benefit were typically marginal in the 2004

election in a municipality that then subsequently contemplated a merger with a much

smaller municipality. We provide more details and intuition in Appendix B.

Overall, there is a lot of variation in our bootstrapped measures for electoral

vulnerability and in Total mechanical change over the candidates. The measures seem

to work as expected (e.g., the council size mechanism is non-positive for everybody)

and mirror what they were constructed for.

[Figure 2 about here]

Table 1 reports descriptive statistics for the electoral vulnerability measures

unconditionally and conditional on the councilors’ voting behavior and merger

outcomes. The upper part of the table shows that Council size and Competition

mechanisms as well as Total mechanical change are on average more negative in the

group of councilors who voted against the merger than they are in the group of

councilors who voted for the merger. This means that the councilors who voted in favor

of the mergers experience a smaller increase in their electoral vulnerability. This is

mostly due to a difference in p1i (and ) between the two groups. The lower part of the

table shows that there are similar differences if the numbers are conditioned on the

merger eventually taking or not taking place.

Table 1 also shows that the mean of p0i does not vary a lot between those

councilors who voted for the merger and who did not vote for it, or between those who

come from the merging municipalities and who come from the municipalities that did

not eventually merge. Since this measure of electoral vulnerability is based on the pre-

24

merger 2004 vote distribution and constituencies, it can be seen as a measure of the

level of political competition in the municipalities at the time the mergers were

contemplated. This suggests that a large part of the cross-sectional variation in the

mechanical change in electoral vulnerability is driven by the variation induced by the

mergers, and not by variation in the electoral vulnerability in the pre-merger

municipalities.

[Table 1 about here]

6. Empirical results

6.1 Main results

We start from Table 2, which presents the results for model (1). The reported results are

for a set of models without fixed effects (Panel A), with separate merger and (national)

party fixed effects (Panel B) and with party-merger fixed effects (Panel C). The

standard errors are clustered spatially, using the constituencies that would result from

the mergers (if they go through) as the clustering unit. In the first column of each panel,

there are no additional control variables. As we move to the right across the columns,

the models have progressively more controls, xikm.

The group of individual controls includes gender, age, age squared, and an

incumbency dummy (= 1 for those who were elected also in the 2000 elections; = 0

otherwise).20 The group of municipality controls include population, per capita mean

20 We also include a dummy for the rare cases where a vice-councilor voted in the merger-vote because the actual councilor was absent. We assume for the purposes of this paper in these cases that the vice-councilor is a perfect and obedient substitute for the councilor. We therefore use the vote of the vice councilor on the L.H.S. but the characteristics of the absent councilor on the R.H.S.

25

income, mean population distance from the municipal center, unemployment,

dependency ratio, per capita taxes, per capita grants and per capita expenditures.

Finally, in the rightmost specifications, we control directly for the vote shares of each

councilor at the municipal and the merger level. These vote shares refer to the

individual councilor’s vote share in the old municipality and to the corresponding

(hypothetical) share in the contemplated merger, as calculated using the 2004 vote data.

Holding the vote shares of a candidate constant means that the only source of variation

in the electoral vulnerability is how the votes are distributed over the other candidates.21

The estimated effect of Total mechanical change in electoral vulnerability on

councilors’ voting behavior, , is statistically significant and positive in all panels and

columns of Table 2. In particular, as the first columns of each panel show, the effect is

robust to adding the merger and party fixed effects separately (Panel B) and to adding

party-merger fixed effects (Panel C). These findings mean that the smaller the increase

in a councilor's electoral vulnerability, the more likely the councilor is to vote for

merger.


Table 3 repeats the regression analyses of Table 2, but uses separate municipality

and party fixed effects (Panel A) and party-municipality fixed effects (Panel B). The

point estimates are smaller, but still uniformly positive. They are statistically significant

21 Of course the vote shares are strongly correlated with our measures of electoral vulnerability. The main reason for including them is to control for voters’ preferences for a particular candidate. We include the vote shares in one of the specifications to err on the side of having an overly conservative set of controls, but acknowledge that doing so may in fact remove much useful identifying variation.

26

at 10 percent level in the first two columns of both panels, but are insignificant in the

third column, which include the vote shares as controls. These findings show that

neither the councils nor the parties vote uniformly. The decrease in the estimated effect

is however not surprising, because including the municipality and party fixed effects in

the model means that the effect of the mechanical change in electoral vulnerability is

identified from within-municipality and within-party variation only.22


Tables 4 and 5 present the results from models in which (p1i − p0i) is replaced by

terms that reflect Council size mechanism, ( − ), and Competition mechanism, ( − ). In Table 4, we present the results from the various models that are equivalent

to those of Table 2. Its three panels show that the effects of Council size and

Competition mechanisms are positive and statistically significant. The former is also

larger than the latter. Thus, it seems that temporarily allowing a larger council size in

the merged municipalities may be associated with the greater likelihood of the mergers

taking place. These findings are robust across the columns and, as Panels B and C show,

to the inclusion of separate merger and party fixed effects and to having party-merger

specific fixed effects in the model.


22 This means that a lot of potentially useful identifying variation is “closed down”. Viewed from this perspective, these results should be interpreted as the (conservative) lower bounds of the effect of interest. See Appendix A for more details on the variation in the data within the fixed effect groups.

27

In Table 5, we present the results from models that mirror those of Table 3. It

shows that when the municipality and party and party-municipality fixed effects are

added, the effect of Competition mechanism is positive and statistically significant.

However, in these models the effect of Council size mechanism is small and also

statistically insignificant.


To make sense of these results, we consider the different actors that are present in

a PR system. The overall picture that emerges from the results presented in Tables 2

through 5 is that adding more disaggregated party fixed effects into the models do not

change our baseline finding about the importance of councilors’ re-election concerns.

This is evident, for example, by comparing the results in Panels B and C in Tables 2 and

4 and also by comparing Panels A and B in Tables 3 and 5. This comparison also shows

two other things. First, parties do matter, because the explanatory power of the models

is greater, the more disaggregated party fixed effects we use. However, it seems that

their effect is largely orthogonal to that of individual electoral vulnerability. Second,

having municipality level fixed effects in the model makes for a bigger change. This

suggests that heterogeneous preferences across municipalities and local democracy

considerations are important drivers of merger decisions. Nonetheless, we find that

holding the electoral (municipality level) and party-line (party-municipality level)

incentives constant, a councilor is the more likely to vote for a merger the less his

electoral vulnerability increases in the merger state relative to the status quo of no

merger. However, a limitation of this analysis is that it does not reveal the concrete

28

reasons for why the councilors’ care about re-election prospects. It is likely that the

reasons include private gains of holding the office, such as pecuniary gains, prestige,

future labor market prospects and the ability to move policy closer to their own

preferred point in the post-merger council.

What about the discrepancy in the effects of Council size and Competition

mechanisms? Perhaps the most intuitive explanation for it is the use of fixed effects.

One might, for example, conjecture that the municipality fixed effects wash away most

of the useful variation in Council size mechanism. However, a closer look at the

variation in the data reveals that this is not the case: There is more unexplained variation

in Council size mechanism than in Competition mechanism after allowing for the most

disaggregated fixed effects (party-municipality).23

To provide further intuition on the drivers of these findings, we split our sample

according to whether the party members voted unanimously (or not) within the

municipalities. The idea is to compare the subsample of the data where it seems that

council or party discipline may have been binding to the subsample where due to split

voting we know that such discipline has not been the sole determinant of voting

behavior.24

The results for these two samples are presented in Table 6. In these models, we

use the party-merger fixed effects. It is evident from Panel A of Table 6 that Council

size mechanism has a positive and statistically significant effect in the sample where the

23 This can be seen from Table A2 in Appendix A, which illustrates how the amount of variation in the outcome and the different mechanisms of interest react to including the various levels of fixed effects. 24 The unanimous sample includes all councilors from the municipalities that voted unanimously and also the councilors from the parties that were unanimous even when the whole municipality was not. In most of these cases, the whole council was unanimous. Here we concentrate on the three dominant parties that have a large number of councilors so that it makes more sense to think about party discipline.

29

party members voted unanimously within the municipalities. In this sample,

Competition mechanism has no effect. The opposite is true for the sample where there

was split voting (Panel B). These results suggest that once we can rule out strict party

discipline, individual councilors seem to be concerned only about the anticipated change

in the composition of voters and political competitors (which is what Competition

mechanism measures). On the other hand, Council size mechanism seems to drive the

decision of whether the entire council or all the party members in a council vote for or

against the merger. These findings are consistent with the view that a policy of

temporarily allowing a larger council size in the merged municipalities may have

increased the likelihood of the mergers taking place.


6.2 Robustness tests

We have probed the robustness of our results in a number of ways. In the interest of

brevity, we report them in Appendix C. It suffices to note here that our baseline results

are robust to, e.g., using i) the subsample of data that includes only the councilors from

the three traditionally dominant (largest) parties; and ii) the subsample of data where

there is split voting within municipalities or party-municipalities and where we use the

corresponding fixed effects.

30

6.3 Policy significance

In-sample analysis

How do the estimated effects translate into changes in the likelihood of mergers? This

question cannot be answered solely on the basis of the point estimates, because for a

merger to go through, it needs a majority in each municipal council contemplating the

merger. To assess the policy significance of the estimates calls therefore for an

evaluation of how much the likelihood of a merger increases if the effect of mergers on

electoral vulnerability is neutralized.

To do this evaluation, we use the estimated models as follows: First, we simulate

merger outcomes by setting Total mechanical effect to zero (Counterfactual). We then

compare the rate of occurrence of mergers thus obtained to the simulated rate of

occurrence when the effect is set at its non-zero estimated value (Actual).25

We report the results of the simulations in Table 7. The reported numbers are the

rate of occurrence of mergers in the simulations for three different sets of

municipalities: First, the set of municipalities that underwent the merger; second, the set

of contemplated mergers that did not take place; and third, all the municipalities that

voted for a merger. The columns of the table report results from four different estimated

models: From a model with separate merger and party fixed effects (Column 1), with

25 The results we report in this section are based on the following simulation: First, we draw a random shock for a councilor from a uniform distribution (on the unit interval) and compare it to the fitted value generated by either the actual estimated model or the counterfactual model (with the effects set to zero). If the draw is smaller (larger) than the fitted value of the given councilor, he is assumed to vote for (against) the merger in the simulation. When we draw such a shock for all councilors, we can calculate whether a certain merger gains the required majority in all the participating municipalities or not. Second, we repeat this 1,000 times and take note of each merger occurrence.

31

party-merger fixed effects (Column 2), with separate municipality and party fixed

effects (Column 3), and with party-municipality fixed effects (Column 4).26

Table 7 illustrates two things. First, it shows that the estimated models predict a

much higher rate of occurrence of mergers in those municipalities that actually merged,

as compared to those who did not merge, which indicates a reasonable model fit.

Second, having the fixed effects in the model improves the model predictions,

especially in the group of municipalities that did not merge. Third and most importantly,

the table shows, depending on the level of fixed effects, that the increase in the rate of

occurrence of mergers increases at least by 2.0 (0.6894–0.6691) and at most by 7.7

(0.7806–0.7032) percentage points when we turn off the effect of electoral vulnerability.

These effects are in relative terms larger in the group of municipalities that did not

merge than in the group that merged. Since there are 59 contemplated mergers in our

data, these numbers mean that from one to four mergers did not take place due to the

desire of the councilors to personally avoid electoral competition. Because the average

number of municipalities in a merger is 3.4, this means, in turn, that there are from 3 to

13 municipalities in the group of municipalities that did not merge that would have

merged, had the councilors not wanted to avoid electoral competition.


26 The merger fixed effects results are based on model (7) of Table 3, the party-merger fixed effects results are based on model (11) of Table 3, the municipal fixed effects results are based on model (2) of Table 4 and the party-municipality fixed effects results are based on model (5) of Table 4.

32

Out-of-sample analysis and external validity

We are inclined to think that our results are representative of how political agency and

electoral concerns have affected the resetting of municipal boundaries in Finland. There

are three arguments for this view: First, our sample is rather comprehensive, as it

includes almost a third of Finnish municipalities. Second, our baseline models include

the municipal level fixed effects, which control for sample selection, at least to an

extent.27 Third, to check the representativeness of the simulation results reported in

Table 7, which apply to the group of municipalities that voted for a merger, we

considered the possibility that the anticipated increase in electoral vulnerability

prevented some municipalities from voting on a merger, and thus reduced the likelihood

of such mergers taking place. This analysis shows (see Appendix D) that the anticipated

increase in electoral vulnerability may have prevented some mergers from taking place

also outside our sample (i.e., among a stratified random sample of potential mergers that

were never voted on). Accounting for them would only strengthen our main

conclusions.

Whether our results generalize to other countries depends on the institutional

differences in electoral systems and in the way nations reset the boundaries of local

governments. For example, in Belgium, Canada, Denmark, Israel and Sweden mergers

were implemented, or at least strictly overseen, by the central government, whereas in

27 To see why, it is useful to recall that sample selection due to unobservables can be formulated as an omitted variable problem (Heckman 1979). This problem can be corrected for by introducing the inverse Mills’ ratio as an additional explanatory variable. Since the decision to vote for a merger is decided at the municipal level, selection into our sample on the basis of unobserved municipal level characteristics can be controlled for by using the municipality fixed effects. Note, moreover, that if sample selection is related to observable explanatory variables, it does not induce a bias in the standard OLS estimation. It could be, for example, that the municipalities that decided to vote for a merger are those where the adverse changes in electoral vulnerability are smaller than in the municipalities that did not decide to have a vote. This kind of selection is not a source of concern to us.

33

Finland, Germany, Japan and the Netherlands, the recent merger decisions have been

taken at the local level, by local politicians. Our findings ought to generalize to

institutionally similar settings, because many, if not most, redesigns of electoral

boundaries change both the composition of voters and the set of political competitors,

like they do in our case. Moreover, council size step functions are used in many

countries (e.g. in Brazil, France, Germany, Italy, Norway and Sweden). While the

relation of population to council size varies across countries, the differences in the

council size rules appear to be surprisingly small, even for countries of very different

sizes, such as Finland and Germany.28

7. Conclusions

The size and number of local governments is a key policy decision from the point of

view of the efficient provision of local public goods and services. We ask whether the

concerns of local politicians (municipal councilors) about their electoral vulnerability,

independently of voter preferences and party-line concerns, affect whether they vote for

or against a municipal merger and to what extent this is reflected in the resulting

municipal structure. We analyze this question by estimating the feedback effect of an

anticipated (mechanical) change in electoral vulnerability on the ex ante behavior of

politicians in a merger vote that determines whether the boundaries of their

constituencies change or not. The novel feature of our paper is that it considers political

agency and re-election concerns to be a driver of the merger decisions.

28 E.g., a Finnish municipality with population of 10000 has 35 seats in its council, whereas a German one has 24. The ratio of the difference in council sizes to the threshold is 0.0011. This means that for each 1000 inhabitants, there is one councilor more in Finland than in Germany. With population 150000, a Finnish municipality has 67 seats and a German one 50. This means that in larger cities, there is one councilor more in Finland than in Germany for each 10000 inhabitants.

34

Our key finding is that holding the electoral (municipality-level) and party-line

(party-municipality -level) incentives constant, a councilor is more likely to vote for a

merger if his electoral vulnerability does not increase in the merger state relative to the

status quo of no merger. Moreover, we find that the expected change in the composition

of voters and political competitors is important in explaining this behavioral response.

Our findings imply that incumbent politicians vote for policies that allow them to

escape political competition. Because councilors react proactively to the expected

changes in political competition, the design of the boundaries of the Finnish local

governments appears to be subject to strategic gerrymandering-type considerations (see

e.g. Gul and Pesendorfer 2010). This means that local politicians’ self-interest may lead

to sub-optimally small municipalities from the local citizens’ point of view. This makes

endogenous merging of (local) jurisdictions inefficient for a reason that the prior

literature has not so far explicitly considered: The foregone mergers are the price that

the society at large pays because the councilors care about the private gains that holding

a public office generate and because they want to avoid electoral competition.

35

Online Appendices (Intended for online publication only)

Appendix A: Data

Control variables

Table A1 presents the descriptive statistics of the control variables in our regression

models.

[Table A1 about here]

Variation in the data

A possible issue with our analysis it that it is unclear what the proper decision-making

level in a PR system is. It could e.g. be that councilors’ parties have all the agenda

setting power, and thus, the individual councilors simply vote according to the party

line. However, our data shows clearly that this is not case. Out of the 3,804 councilors

in our data, 2,134 councilors come from municipalities where there is no variation in

vote within the councilors’ home municipality. If these were the only data, it would be

impossible to analyze empirically the determinants of the voting decisions using

councilor-level data. However, of the remaining 1,670 councilors, for which the voting

varies within their home municipalities, there is councilor-level variation also within the

parties in the voting behavior (in 1,057 cases). Moreover, these deviations from the

party-municipality line are mostly not about only one councilor deviating.

In Table A2, we report the R2 measures from regression models where we regress

our voting outcome and our key explanatory variables on different sets of fixed effects

used in the models reported in the paper. The table shows, for example, that the party-

36

municipality fixed effects explain 63 percent of the variation in the voting outcome.

More disaggregated fixed effects explain systematically more of the variation in both

the voting outcome and the electoral vulnerability measures. The overall picture that

emerges is that we still have a considerable amount of variation left even with the most

disaggregated fixed effects.

[Table A2 about here]

Finally, in Figure A1, we report histograms of the shares of votes in favor of the

merger, separately for each of the various groups of political actors that also correspond

to the different, disaggregated levels of fixed effects that we use in the empirical

analysis. The figure shows that there is a non-negligible amount of within group

variation even within the party-municipality groups in the outcome variable: Not all

data is concentrated either at zero or at one. Bars between zero and one represent

deviations from the respective group line. For example, when there are deviations from

the party-municipality line, typically more than one councilor deviates (see bottom-right

histogram in Figure A1).

[Figure A1 about here]

Appendix B: Details on the bootstrap procedure

This Appendix provides additional details on and a concrete example of the bootstrap

procedure that we use to generate our empirical measures for the electoral vulnerability.

37

Basic idea

As we explain in the main text, our procedure builds on that of Kotakorpi et al. (2013),

from which the reader can find additional details. In our application, the procedure uses

information on the identity of the candidates in the 2004 election, the vote distribution

from the 2004 election and the number of available seats in the different merger states

based on the council size rule. An underlying assumption of the procedure is that the

distribution of voter preferences at the margin of abstaining and participating is identical

for those who turned out to those who did not, because allocating each new vote draw in

the bootstrap is based on the vote shares in the real elections.

The aim of the bootstrap procedure is to construct a smooth (continuous) measure

for electoral vulnerability in the pre-merger and post-merger elections that is capable of

mirroring the complexities of a multi-party PR system and that varies between the

councilors who cast a vote in the merger votes. In the Finnish open-list local election

system, each voter gives a single vote to a single candidate. This implies that unlike in

the closed-list elections, a vote distribution over individual candidates is available in the

Finnish system. It is therefore sensible to measure electoral vulnerability at the level of

candidates as opposed to the level of parties. The purpose of the bootstrap procedure is

to mimic uncertainty naturally present in the election outcomes of individual candidates:

Some marginal councilors could lose their seat due to a change in the vote distribution

and party-lists, whereas for the non-marginal councilors, such changes would have to be

much larger to have an impact.

38

Hypothetical example

To explain how the bootstrap procedure works in practice, we focus on a concrete but

hypothetical example. To this end, we consider candidates that come from two

imaginary municipalities, a small municipality A and a large municipality B, which

merge with each other.

Table B1 reports results from the pre-merger elections for these municipalities and

the electoral vulnerability calculations based on these election results. From left to right,

we report municipality IDs, party IDs, candidate IDs, the number of votes that each

candidate received in the pre-merger election, elections status (1= elected; 0 = not

elected), vote shares both in the old municipality and the merger, and our bootstrap

variables, 0ip , 1ip and 1ip . These are used to calculate the change in the electoral

vulnerability measures, which are reported in last three columns: Total mechanical

effect ( 1ip – 0ip ), Competition mechanism ( 1ip – 0ip ) and Council size mechanism ( 1ip –

1ip ).

As the table shows, municipality A is assumed to have 6 candidates and

municipality B 18. We assume that the council size in municipality A is 3 and in

municipality B it is 10. We also assume that the official council size in the post-merger

elections is 10. To be able to show that our measure also captures differences in political

preferences across municipalities, we assume there are 3 active parties in municipality

A but 4 active parties in municipality B.

[Table B1 about here]

39

To calculate Total mechanical change, we implement the bootstrap procedure

twice, once for two different scenarios. First, we consider a scenario in which the

merger is assumed not to go through. For this scenario, we use the pre-merger

municipalities as the constituencies. For the second scenario, we proceed as if the

merger took place. The hypothetical post-merger constituency is constructed by

allowing both the set of candidates and voters as well as the number of available council

seats to mirror the properties of the post-merger entity.

Consider now a single bootstrap round: In Step 1, we sample votes with

replacement for each candidate from the pre-merger vote distribution (column 4). The

sampling probability of a vote for a candidate is the share of the votes that he/she

received in his own municipality (sampling probabilities for 0ip ) or in the entire merger

(sampling probabilities for 1ip and 1ip ). Thus, for example, sampling probabilities are

4/52 and 4/498 for the candidate on the first row (Candidate 1 in Municipality A). We

record the outcome of each draw, which results in one of the candidates getting one

vote. We repeat this vote sampling 52 (for 0ip ) or 498 (for 1ip and 1ip ) times to produce

a set of votes for each candidate in the municipality A.

In Step 2, we use the sampled vote distribution to calculate a hypothetical

election outcome using the actual election rules. For the first scenario, we use the old

municipalities as the constituencies to determine whether a candidate gets elected (for

0ip ). For this calculation, we use council size of 3 for municipality A and 10 for

municipality B. We then repeat the calculations for the second scenario, i.e., as if the

merger took place. For this calculation, we use council size of 10 for 1ip and 13 for 1ip .

The only difference between p1i and is the different council size used in their

calculation.

40

In Step 3, we repeat the bootstrap elections of Steps 1 and 2 10,000 times and

count the share of times a particular candidate is elected the three scenarios. This gives

us p0i, p1i and 1ip .

We are now ready to make a number of observations about the bootstrap

procedure and the nature of the measures that it generates:

• Monotonicity: Within each party list, p0, p1 and are increasing in votes, as

they should be.

• Nature of electoral vulnerability: Looking at the column for p0i in Table B1

shows that all those councilors for whom p0i is clearly below one, are lucky and

subject to electoral competition. Their seats are vulnerable to start with, because

they are more likely to lose their seats to non-elected candidates if the pre-

merger elections were re-organized (and all the voters voted in the same way as

they actually did in the pre-merger elections) in the old municipality and if we

allow a degree of randomness in the voting outcomes. In particular, there are no

certain candidates (p0 exactly 1) in the smaller municipality A, but there are

some in the larger municipality B.

• Sources of electoral vulnerability: The two sources of electoral vulnerability are

between parties and within party competition. To consider the former first,

notice that party 3 in municipality A gains on average 1.22 (0.003 + 0.542 +

0.678) seats in the bootstrap procedure. This means that in 22% of our bootstrap

rounds they manage to steal a seat from either party 1 or 2, and about equally

often from each. Party 3 in municipality A provides an example of within party

competition: Candidates 5 and 6 compete against each other when party 3 gains

only one seat.

41

• Total mechanical effect ( 1ip – 0ip ): The total effect is typically negative, but can

also be positive for some candidates (as we explain in detail below). A

comparison of the column for p0i with that for p1i shows that should the merger

take place, the candidates from municipality A have to compete against the

politicians from municipality B. The values of p1i show that even the strongest

candidates from municipality A are subjected to intense competition since the

maximum value of p1i is 0.751. Therefore, all the candidates from municipality

A face uncertainty over their re-election if the merger goes through. However,

Total mechanical effect is nevertheless quite small for candidates 1 and 4, who

had little chance to get elected even in the old municipality and for candidate 3,

who due to his large vote share in the old municipality seems to be able to rise

high enough in the within-party ranking also in the merged municipality.

• Competition mechanism ( 1ip – 0ip ): As the second rightmost column of the table

shows, Competition mechanism is mostly negative for candidates from

municipality A but large and positive for some candidates in larger municipality

B. The candidates who gain are typically those who are marginal in the old, pre-

merger municipality, face little within party threat from the members of own

party in municipality A, and who benefit from the hypothetical increase in the

number of total seats available (from 10 to 13 when we compare p0i to ) that

this measure captures. For example, candidates 2 and 3 from municipality B are

marginal in the old election because they often compete with each other for the

second seat of their party. They face little threat from party 1 candidates from

municipality A. To see this, note that top party 1 candidate in municipality A has

11 votes whereas candidates 2 and 3 from municipality B have 20 and 22 votes.

42

As one of the new three seats would be allocated to party 1 (if the council size

was not reduced), Competition mechanism is positive for candidates 2 and 3

from municipality B. The same applies to candidate 13 from municipality B.

• Council size mechanism ( 1ip – 1ip ): As the last column of the table shows,

Council size mechanism is always non-positive, as it should. This column shows

how, besides having an adverse impact on a single marginal candidate, this

mechanism may disproportionately hit some parties that have multiple marginal

candidates on their lists. Moreover, we can see that Council size mechanism has

a smaller impact in the smaller municipality, but it is important for some

candidates in the larger municipality. The column also shows how the negative

Council size mechanism nearly offsets the positive Competition mechanism for

some candidates of municipality B (see e.g. candidates 2 and 3).

In Table B2, we show an example of a single real municipality to show that the

patterns of Table B1 are present also in the real data. In order not to explode the size of

the table, we show only the candidates from a single small municipality, which in our

data merges with one much larger partner.

[Table B2 about here]

Technical detail: Block size in Step 2

An important detail of step 2 in the bootstrap procedure is the size of each draw (i.e., the

number of votes sampled per draw). In the case of small municipalities, the size of each

draw is one vote. However, in larger municipalities, re-sampling will not introduce

variation in the election outcomes across the bootstrap repetitions if the draw size is

43

small relative to the total number of votes given in the election. The reason for this is

the following: When the number of total votes gets larger, the differences in the amount

of votes between the marginal candidates increases on average. In other words, the

probability that a single voter is pivotal decreases as the size of the municipality

increases. This means that the larger the municipality is, the less likely it is for us to find

candidates for whom the election outcome would vary over the bootstrap repetitions.

This would lead to a discrete and coarse measure of electoral vulnerability.

To avoid this, we follow Kotakorpi et al. (2013) and sample votes in blocks. This

re-introduces variation in the case of larger municipalities. For each municipality in

which more than 2000 votes are given, we take only 2000 draws in Step 2. If a

candidate is drawn to get a vote, we weight the vote so that the total number of votes in

each bootstrap election round matches with the amount of votes given in the actual

election. For example, in a municipality where 7000 votes were given, 3.5 votes are

allocated to the candidate in each draw, if he/she is drawn. The number 2000 is ad hoc,

but the distributions of the electoral vulnerability measures are fairly stable over a

reasonable range of the size of draws. We regard the use of block size as a technical

device that helps us to get a smooth (continuous) measure for electoral vulnerability.

However, it is not entirely without a theoretical backing. The approach could be

motivated, for example, by the group voting theory (e.g., Coate and Conlin 2004).

Anecdotal evidence on re-election concerns and municipal mergers

It is difficult to find examples of councilors publicly stating that they are concerned

about their personal re-election prospects after a merger. However, in public discussions

councilors often raise concerns over regional political representation after a merger. Of

44

course from these statements it is impossible to distinguish between self-interest and

actual concerns over regional representation. See for example:

• “Municipal politicians oppose a municipal merger due to its impact on local

democracy” (in Finnish: “Kuntapoliitikot vastustavat kuntaliitosta - perusteluna

lähidemokratia”), an article on the website of Finnish Broadcasting Company,

YLE (11.4.2014), discussing the reasons why local politicians oppose proposed

mergers.29

In addition, a number of local and national newspapers have calculated election

outcomes using pre-merger vote distributions and actual election rules when a particular

merger has been contemplated. These calculations correspond to our measure of p1, but

without the re-sampling procedure. See for example:

• “Municipal reform would increase the political power of the Centre Party” (in

Finnish: “Kuntauudistus nostaisi keskustan kannatusta keskuskaupungeissa”), an

article in Helsingin Sanomat newspaper (9.2.2012), discussing the relative

power of parties in different proposed mergers based on the vote distribution of

pre-merger elections.30

• “Social Democrats would stay in power in the Jyväskylä municipality” (in

Finnish: “Demareiden valta-asema säilyisi uudessa Jyväskylässä”), an article in

Keskisuomalainen newspaper (21.1.2014), discussing the composition of the

new municipality council (based on the vote distribution of pre-merger

elections) if a merger between 9 municipalities would take place.31

29 http://yle.fi/uutiset/kuntapoliitikot_vastustavat_kuntaliitosta_-_perusteluna_lahidemokratia/5672050 30 http://www.hs.fi/kotimaa/Kuntauudistus+nostaisi+keskustan+kannatusta+keskuskaupungeissa/a1305555315424 31 Not available online.

45

Appendix C: Robustness checks

In this Appendix, we report a series of sensitivity tests that we have implemented to

probe the robustness of our results. We start by repeating the analyses of Table 3 and 5

of the main text, using the subsample of data that includes only the councilors from the

three traditionally dominant (largest) parties. The models always include the party-

municipality fixed effects. These estimates are reported in Panel A and B of Table C1.

The results echo our baseline findings, but are somewhat stronger in terms of the size of

the effects and their statistical significance.32 There are several potential explanations

for this stronger ex ante behavioral effects. For example, the larger party organizations

may be better able to inform certain councilors on the potential adverse effects of the

mergers on the electoral vulnerability of their fellow party members. Moreover, the

politicians for whom political careers (and thus re-election) matter more may self-select

into the larger parties.

[Table C1 about here]

We also confirm in Table C2 that our results are robust to omitting all the

observations which have no variation in the outcome within the fixed effect groups that

are used in the estimation. This exercise is useful in reconfirming that we have enough

variation in the voting decisions for identification even after including the most

disaggregated fixed effects.

32 The same is true also for the no fixed effects and the merger fixed effects models both in the total effect and decomposition regressions in all specifications. We do not report these for the sake of brevity.

46

[Table C2 about here]

Appendix D: Effect of increased electoral vulnerability out-of-sample

The simulation results reported in Table 7 of the main text apply to the group of

municipalities that voted for a merger. This is a selected group of municipalities. It is

therefore of interest to consider the possibility that the anticipated increase in electoral

vulnerability prevented some municipalities from voting on a merger, and thus reduced

the likelihood of such mergers taking place.

To shed some light on this issue, we draw a stratified random sample from the

universe of all potential mergers. To limit the set potential mergers to a feasible size, we

do not allow them to cross county borders, they have to share a common border and

they cannot include more than six partners.33 The sample is stratified based on the

number of merger partners so that the drawn sample matches our data in this dimension.

Since we have councilor level election data for all municipalities, we can calculate the

Total mechanical change in electoral vulnerability due to these potential mergers also

for the councilors in this stratified random sample. We find that Total mechanical

change is on average -0.418 in the stratified random sample of potential mergers. This

effect is only slightly larger in absolute terms than in the sample that voted on the

mergers (-0.407, see Table 1 in the main text).

We can also repeat the merger simulations of Table 7 for the stratified random

sample of potential mergers. To this end, we generate out-of-sample predictions of

merger votes for individual councilors. A limitation of this procedure is, however, that

we do not have estimates for the merger or municipal fixed effects for the municipalities

33 See Saarimaa and Tukiainen (2014) for the details of creating all the potential mergers and of the sampling procedure.

47

that are in the stratified sample. Therefore, we follow a pragmatic approach and conduct

the merger simulation using the model (3) in Table 2, but in addition include a set of

merger level control variables (see Table A1 in Appendix A).34 To account for the lack

of fixed effects, i.e. to allow the voted mergers to be unobservably different from those

potential mergers that were never actually voted upon, we calibrate the estimated

models by introducing a shock to all potential mergers. The idea of these shocks is to

reduce the likelihood of the merger going through in the simulated merger votes so that

the vote outcomes would better reflect the lower empirical rate of occurrence among the

potential mergers that were never voted upon. We repeat the simulations over a range of

such shocks.

We find that the anticipated increases in the electoral vulnerability reduce the rate

of merger occurrence from 3 to 15 percentage points, as the calibrated shock varies

between [0, -0.5]. These numbers suggest that the anticipated increase in electoral

vulnerability may have prevented some mergers from taking place also in the stratified

random sample of potential mergers. The effect appears to be non-negligible for a

number of potential merger constellations, except for those that are the most unlikely to

succeed (i.e., when the calibrated shock is very negative).

In sum, anticipated increases in electoral vulnerability make municipal mergers

less likely in two ways. First, as we showed in the main text, conditional on a potential

merger being voted, it reduces the likelihood of the merger going through by 2–7

percentage points. Second, the anticipated increase in electoral vulnerability seems to

have prevented some mergers from taking place also among the potential mergers that

were never voted upon.

34 In this model, the effect of Total mechanical change on voting for a merger is 0.209 and it has a standard error of 0.057.

48

Acknowledgements

We thank Tim Besley, Micael Castanheira, Torun Dewan, Olle Folke, Ronny Freier,

Phil Haile, Kaisa Kotakorpi, Gilat Levy, Gerard Padro i Miquel, Torsten Persson, Tanja

Saxell, Frode Steen, Marko Terviö, Otto Toivanen, Jouko Verho, the editor Brian

Knight and anonymous referees for helpful comments. We also thank seminar

participants at EPCS 2011 at Rennes, EPSA 2011 at Dublin, HECER, IEB, Jyväskylä,

Oulu, STICERD at LSE and VATT for useful discussions. Oskari Harjunen and Niklas

Jahnsson provided excellent research assistance. Tuukka Saarimaa is grateful to the

Finnish Cultural Foundation for funding and SERC at the London School of Economics

and Political Science for hospitality. Janne Tukiainen is grateful to Emil Aaltonen

Foundation, Jenny and Antti Wihuri Foundation and Yrjö Jahnsson Foundation for

financial support and STICERD at the London School of Economics and Political

Science for hospitality.

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54

Figure1. Histograms of , and p1i.

Notes: Panel A reports p0i, which refers to the share of times a particular candidate is elected in the bootstrap scenario in which none of the mergers takes place. Panel B reports , which refers to the share of times a particular candidate is elected in the bootstrap scenario in which all of the mergers takes place, but assuming that the council size was not reduced as the law would require. Panel C reports p1i, which refers to the share of times a particular candidate is elected in the bootstrap scenario in which all of the mergers takes place, but assuming that the council size is reduced as the law required.

05

1015

Den

sity

0 .2 .4 .6 .8 1Bootstrap election (merger = 0)

Panel A

05

1015

Den

sity

0 .2 .4 .6 .8 1Bootstrap election (merger = 1, old council size)

Panel B

05

1015

Den

sity

0 .2 .4 .6 .8 1Bootstrap election (merger = 1, new council size)

Panel C

55

Figure 2. Histograms of the mechanical changes.

Notes: Panel titled B-A reports Competition mechanism, –p0i. Panel titled C-B reports Council size mechanism, p1i– . Panel titled C-A reports Total mechanical change, p1i – .

01

23

45

Den

sity

-1 -.5 0 .5 1Competition mechanism

B - A

01

23

45

Den

sity

-.8 -.6 -.4 -.2 0Council size mechanism

C - B

01

23

45

Den

sity

-1 -.5 0 .5Total mechanical change

C - A

56

Table 1. Descriptive statistics of the measures of electoral vulnerability.

Notes: p0i refers to the share of times a particular candidate is elected in the bootstrap scenario in which none of the mergers takes place. refers to the share of times a particular candidate is elected in the bootstrap scenario in which all of the mergers takes place, but assuming that the council size was not reduced as the law would require. p1i refers to the share of times a particular candidate is elected in the bootstrap scenario in which all of the mergers takes place, but assuming that the council size is reduced as the law required.

Mean Std. Dev. Mean Std. Dev. Mean Std. Dev.

Number of councilors

p 0 0.841 0.185 0.852 0.179 0.838 0.186

0.670 0.303 0.582 0.289 0.690 0.303

p 1 0.433 0.358 0.309 0.309 0.462 0.362

Competition mechanism -0.171 0.303 -0.270 0.268 -0.148 0.307

Council size mechanism -0.236 0.160 -0.272 0.150 -0.228 0.161

Total mechanical change -0.407 0.342 -0.543 0.289 -0.376 0.346

Mean Std. Dev. Mean Std. Dev.


p 0 0.853 0.178 0.836 0.187

0.631 0.304 0.685 0.302p 1 0.357 0.341 0.464 0.360

Competition mechanism -0.222 0.301 -0.151 0.302

Council size mechanism -0.274 0.154 -0.221 0.160

Total mechanical change -0.496 0.330 -0.373 0.340

All

3,804

Vote = 0 Vote = 1

720 3,084

1,077

Merger = 0 Merger = 1

2,727

1p

1p

57

Table 2. Total mechanical change (no, merger and party-merger fixed effects).

Notes: The results are from linear probability models where the dependent variable is whether the councilor voted in favor of the merger. Sample size in each regression is 3,804. Standard errors are robust to clustering at the merger level and are reported in parentheses. ***, ** and * indicate statistical significance at 1, 5 and 10 percent level, respectively.

(1) (2) (3) (4)

Total mechanical change 0.219*** 0.220*** 0.153** 0.152***

(0.057) (0.057) (0.058) (0.055)

R2

0.04 0.04 0.09 0.09

(5) (6) (7) (8)

Total mechanical change 0.165*** 0.165*** 0.146*** 0.143***

(0.049) (0.049) (0.053) (0.051)

R2

0.26 0.26 0.33 0.34

(9) (10) (11) (12)

Total mechanical change 0.173*** 0.173*** 0.158*** 0.164***

(0.049) (0.050) (0.051) (0.052)R

20.39 0.39 0.45 0.45

Individual controls No Yes Yes Yes

Municipality controls No No Yes Yes

Vote shares No No No Yes

Panel A: No fixed effects

Panel B: Separate merger and party fixed effects

Panel C: Party-merger fixed effects

58

Table 3. Total mechanical change (municipality and party-municipality fixed effects).


(1) (2) (3)

Total mechanical change 0.074* 0.072* 0.062

(0.040) (0.040) (0.046)

R2

0.49 0.49 0.49

(4) (5) (6)

Total mechanical change 0.072* 0.071* 0.070

(0.041) (0.041) (0.045)

R2

0.66 0.66 0.64

Individual controls No Yes Yes

Vote shares No No Yes

Panel B: Party-municipality fixed effects

Panel A: Separate municipality and party fixed effects

59

Table 4. Decomposition results (no, merger and party-merger fixed effects).


(1) (2) (3) (4)

Council size mechanism 0.270** 0.275** 0.270*** 0.264**

(0.104) (0.105) (0.100) (0.118)

Competition mechanism 0.205*** 0.205*** 0.111* 0.132**

(0.062) (0.061) (0.065) (0.058)

R2

0.04 0.04 0.09 0.09

(5) (6) (7) (8)

Council size mechanism 0.251*** 0.257*** 0.198*** 0.196**

(0.068) (0.070) (0.058) (0.076)


(0.054) (0.053) (0.067) (0.059)

R2

0.26 0.26 0.33 0.34

(9) (10) (11) (12)

Council size mechanism 0.279*** 0.283*** 0.223*** 0.258***

(0.076) (0.078) (0.062) (0.085)


(0.054) (0.054) (0.066) (0.059)

R2

0.39 0.39 0.45 0.45




Panel A: No fixed effects

Panel B: Separate merger and party fixed effects

Panel C: Party-merger fixed effects

60

Table 5. Decomposition results (municipality and party-municipality fixed effects).

Notes: The results are from linear probability models where the dependent variable is whether the councilor voted in favor of the merger. Sample size in each regression is 3804. Standard errors are robust to clustering at the merger level and are reported in parentheses. ***, ** and * indicate statistical significance at 1, 5 and 10 percent level, respectively.

(1) (2) (3)

Council size mechanism 0.007 0.009 -0.052

(0.044) (0.044) (0.055)

Competition mechanism 0.134*** 0.128*** 0.148***

(0.046) (0.046) (0.054)

R2

0.49 0.49 0.49

(5) (6) (7)

Council size mechanism 0.034 0.036 0.013

(0.039) (0.038) (0.050)

Competition mechanism 0.109*** 0.106** 0.116**

(0.047) (0.047) (0.051)

R2

0.66 0.66 0.66





61

Table 6. Results for unanimous and split voting samples (party-merger fixed effects).

Notes: The results are from linear probability models where the dependent variable is whether the councilor voted in favor of the merger. The samples include councilors only from the three largest parties. Standard errors are robust to clustering at the merger level and are reported in parentheses. ***, ** and * indicate statistical significance at 1, 5 and 10 percent level, respectively.

(1) (2) (3) (4)

Council size mechanism 0.196** 0.197** 0.166*** 0.219***

(0.083) (0.085) (0.060) (0.072)

Competition mechanism 0.028 0.027 0.033 0.052

(0.049) (0.049) (0.074) (0.069)

R2

0.63 0.63 0.70 0.70

N 2,141 2,141 2,141 2,141

(5) (6) (7) (8)

Council size mechanism 0.222 0.235 0.130 0.033

(0.174) (0.170) (0.162) (0.193)

Competition mechanism 0.143* 0.138* 0.369*** 0.388***

(0.077) (0.075) (0.105) (0.114)

R2

0.17 0.18 0.20 0.20

N 967 967 967 967




Panel A: Unanimous

Panel B: Split voting

62

Table 7. Counterfactual simulation results.

Notes: The table presents results from a merger vote simulation exercise. The numbers correspond to shares of realized mergers for each model specification and merger sub-sample. The simulations are based on 1,000 repetitions.

Model specification: Merger FE

Party-merger FE

Municipality FE

Party-municipality FE

(1) (2) (3) (4)

Merger = 1:

Actual 0.9449 0.9511 0.9369 0.9528

Counterfactual 0.9765 0.9856 0.9661 0.9755

Merger = 0:

Actual 0.1955 0.1682 0.0637 0.0569

Counterfactual 0.3565 0.3382 0.0869 0.0722

All:

Actual 0.7076 0.7032 0.6604 0.6691

Counterfactual 0.7802 0.7806 0.6877 0.6894

63

Table A1. Descriptive statistics.

Mean Std. Dev. Mean Std. Dev. Mean Std. Dev.


Councilor characteristics:

Age 48.3 11.0 48.0 11.2 48.4 10.9

Female 0.365 0.482 0.358 0.480 0.368 0.482

Two or more terms in council 0.600 0.490 0.617 0.486 0.594 0.491

Vote share in municipality 0.024 0.016 0.025 0.016 0.023 0.016

Vote share in merger 0.008 0.006 0.006 0.005 0.008 0.007

Municipal characteristics:

Population 9,656 15,241 7,896 10,333 10,686 17,450

Taxable income (€ per capita) 10,511 1,761 9,691 1,476 10,991 1,742

Mean population distance to centre (km) 5.49 10.32 7.26 16.71 4.45 1.99

Unemployment rate (%) 10.9 3.87 12.5 3.74 9.9 3.65

Dependency ratio 1.51 0.27 1.64 0.26 1.44 0.25

Municipal income tax rate (%) 19.0 0.68 19.2 0.6 18.8 0.72

Central government grants (€ per capita) 1,563 574 1,827 529 1,408 544

Total expenditures (€ per capita) 5,000 737 5,266 825 4,845 635

Merger characteristics:

Population 28,323 27,271 27,014 21,815 28,930 29,693

Taxable income (€ per capita) 11,171 1,583 10,328 1,288 11,562 1,567

Mean population distance to centre (km) 8.91 4.71 12.68 6.16 7.16 2.39

Unemployment rate (%) 11.2 3.72 12.8 3.47 10.4 3.63

Dependency ratio 1.52 0.23 1.64 0.19 1.47 0.23

Municipal income tax percent (%) 19.0 0.51 19.2 0.4 18.9 0.54

Central government grants (€ per capita) 1,431 501 1,688 440 1,312 487

Total expenditures (€ per capita) 5,043 583 5,326 722 4,913 460

Cooperation 0.5 0.5 0.4 0.5 0.6 0.5

Merger size 2.9 1.5 3.4 1.6 2.7 1.5

All Merger = 0 Merger = 1

3,804 1,077 2,727

64

Table A2. Variation in key variables in different fixed effect groups.

Note: The table reports R-squared measures from regression models where the variables are regressed on different fixed effect level dummy variables.

Variable Merger Party-merger Municipality Party-municipality

Vote decision (0/1) 0.24 0.37 0.48 0.66

Total mechanical change 0.22 0.31 0.81 0.84

Council size mechanism 0.35 0.41 0.43 0.52

Competition mechanism 0.11 0.24 0.83 0.86

65

Figure A1. Share of councilors voting in favor of the merger.

Notes: In each histogram, the unit of observation is a merger, party-merger, municipality or party-municipality -group. The magnitude of interest is the share of councilors in each group that voted in favor of the merger.

05

1015

Den

sity

0 .2 .4 .6 .8 1Yes vote share within merger

05

1015

Den

sity

0 .2 .4 .6 .8 1Yes vote share within party-merger

05

1015

Den

sity

0 .2 .4 .6 .8 1Yes vote share within municipality

05

1015

Den

sity

0 .2 .4 .6 .8 1Yes vote share within party-municipality

66

Mun

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Part

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p0

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A1

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80.

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0.00

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01

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211

10.

212

0.02

20.

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0.01

90.

107

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316

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B1

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B2

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360

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-0.2

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B2

711

10.

025

0.02

20.

620

0.22

80.

658

-0.3

920.

038

-0.4

30

B2

814

10.

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80.

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0.57

30.

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-0.3

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005

-0.3

09

B2

936

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01

11

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1180

10.

179

0.16

11

11

00

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0.09

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271

0.09

30.

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-0.1

72

B3

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00.

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0.17

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0.99

71.

000

0.00

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02

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1510

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07

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0.06

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19

Tab

le B

1. B

oots

trap

ele

ctio

ns e

xam

ple

with

two

fictio

nal m

unic

ipal

ities

.

67

Table B2. Illustration of p0, p1 and in an actual municipality.

Party IDCandidate

IDNumber of

votesElection status

p 0 p 1

1 7 14 1 0.7476 0.0001 0.0037

1 8 15 1 0.7986 0.0004 0.0039

1 10 28 1 0.9983 0.0106 0.0652

1 11 29 1 0.9988 0.014 0.0759

1 14 29 1 0.9989 0.0131 0.0777

1 15 32 1 0.9997 0.0221 0.1096

1 12 32 1 0.9999 0.0211 0.1103

1 9 47 1 1 0.1298 0.3667

1 13 81 1 1 0.6676 0.8715

2 18 7 0 0.0162 0.0001 0.0002

2 17 30 1 0.957 0.0318 0.1259

2 16 45 1 0.9972 0.1806 0.4002

3 23 9 0 0.0389 0.0001 0.0013

3 19 16 0 0.5762 0.001 0.0146

3 22 18 1 0.7634 0.0019 0.0199

3 21 19 1 0.8333 0.0026 0.0302

3 20 66 1 1 0.5376 0.7964

4 2 67 1 1 0.4858 0.7437

8 6 3 0 0 0 0

8 5 6 0 0 0 0

8 4 11 0 0.011 0 0

8 3 24 1 0.9364 0 0.0001

19 27 3 0 0.0001 0 0

19 28 4 0 0.0002 0 0

19 25 7 0 0.0141 0 0.0006

19 26 8 0 0.026 0 0.0007

19 29 14 0 0.2977 0.0015 0.0081

19 24 29 1 0.9905 0.0464 0.1218

1p

68

Table C1. Results for large parties (party-municipality fixed effects).

Notes: The results are from linear probability models where the dependent variable is whether the councilor voted in favor of the merger. Standard errors are robust to clustering at the merger level and are reported in parentheses. ***, ** and * indicate statistical significance at 1, 5 and 10 percent level, respectively.

(1) (2) (3)

Total mechanical change 0.098** 0.099** 0.092*

(0.044) (0.044) (0.049)

R2

0.63 0.63 0.63

N 3,108 3,108 3,108

(4) (5) (6)

Council size mechanism 0.049 0.054 0.024

(0.045) (0.045) (0.059)


(0.046) (0.045) (0.049)

R2

0.50 0.50 0.50

N 3,108 3,108 3,108

Municipality-party fixed effects Yes Yes Yes



Panel A: Total mechanical effect for large parties

Panel B: Decomposition for large parties

69

Table C2. Results for split-vote samples.

Notes: The results are from linear probability models where the dependent variable is whether the councilor voted in favor of the merger. The models are estimated using subsamples where there is split voting within corresponding fixed effect groups. Standard errors are robust to clustering at the merger level and are reported in parentheses. ***, ** and * indicate statistical significance at 1, 5 and 10 percent level, respectively.

(1) (2) (3)

Council size mechanism -0.032 -0.027 -0.179

(0.102) (0.099) (0.118)


(0.085) (0.084) (0.099)

R2

0.24 0.24 0.24

N 1,670 1,670 1,670

(5) (6) (7)

Council size mechanism 0.034 0.039 -0.053

(0.164) (0.160) (0.196)

Competition mechanism 0.296** 0.282** 0.350**

(0.124) (0.122) (0.140)

R2

0.23 0.23 0.23

N 1,057 1,057 1,057





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