When Integration Backfires: Examining the Effects of Inter-Municipal Cooperation on Local Housing Markets

Abstract

This paper estimates the causal effect of mandatory inter-municipal cooperation on local service provision and housing markets. I examine Italy's 2010 reform, which required small municipalities to jointly manage core administrative functions, and identify its impact using a fuzzy difference-in-discontinuity design. Among municipalities whose cooperation status was shifted by the population threshold, residential property values declined by 4%–6% and commercial values by 11%–18%. These declines coincide with higher current expenditures and deterioration in childcare, policing, street lighting, and waste collection, while property tax rates and housing supply remain unchanged. Municipal population and net migration also fall. Compliance was limited and concentrated among relatively larger, denser, and less rural jurisdictions, suggesting that political and administrative implementation constraints limited the mandate's reach among the smallest municipalities targeted by the policy. The results indicate that coercive enlargement of functional jurisdiction size can generate coordination costs that weaken spending efficiency. More broadly, the findings underscore the importance of institutional design and local implementation constraints in shaping the economic consequences of scale-based reforms.