Local Government Fragmentation and Debt Development in Swedish Municipalities

Abstract

The common pool problem and veto player model states that fragmented governments generate higher levels of public debt. This study explores these mechanisms in the Swedish setting, which has not previously been investigated, by using panel data for 289 municipalities between 1998 to 2017. In contrast to previous studies, we extend our model to explore potential effects of local government fragmentation for cross-ideological coalitions. When examining fragmented local governments in general, we do not find evidence of higher debt levels. However, when dealing with concerns of endogeneity by employing an IV-estimation, we find support of this proposition. We also find that the effect of local government fragmentation on municipal debt rather seems to be attributed to cross-ideological governments in the Swedish context, which could be due to the presence of predetermined ideological constellations.