OECD PERSPECTIVES ON MUNICIPAL COOPERATIONWhat to Gain? What to Lose?

Maria-Varinia Michalun

Regional Development and Multi-level Governance Division

Centre for Entrepreneurship, SMEs, Regions and Cities, OECD

2 February, 2021

Public Governance Conference (virtual)

Estonia: Ministry of Finance

4 February 2019 – Tallinn, Estonia

• Why work together?

• The advantages and disadvantages of cooperation

• Inter-municipal cooperation practices in OECD countries

• Inter-municipal cooperation and Estonia

Outline

Why Work Together?

3

What some governments say:

Our local governments are too small to operate efficiently

Small local governments cannot meet quality standards for public services

Mergers and outsourcing are not an option for us

Our local governments are responsible for a wide variety of services and optimal production sizes vary by service

Demographic size of municipalities in the EU28

Average and median municipal size (# of inhabitants)

Municipalities by population size class

0

40 000

80 000

120 000

160 000

Czech…

Slovak…

Fra

nce

Cyp

rus

Hun

gary

Aus

tria

Spa

in

Luxe

mbo

urg

Mal

ta

Rom

ania

Ger

man

y

Cro

atia

Italy

Slo

veni

a

Pol

and

Latv

ia

Est

onia

Fin

land

Bel

gium

Bul

garia

Gre

ece

Por

tuga

l

Sw

eden

Net

herla

nds

Lith

uani

a

Den

mar

k

Irel

and

United…

Median municipal size Average municipal size

0%10%20%30%40%50%60%70%80%90%

100%

Cze

ch R

epub

lic

Fra

nce

Slo

vak

Rep

ublic

Cyp

rus

Hun

gary

Spa

in

Aus

tria

Ger

man

y

Italy

Luxe

mbo

urg

Cro

atia

Rom

ania

Mal

ta

Fin

land

Slo

veni

a

Gre

ece

Est

onia

Latv

ia

Bul

garia

Por

tuga

l

Den

mar

k

Bel

gium

Net

herla

nds

Pol

and

Sw

eden

Lith

uani

a

Uni

ted

Kin

gdom

Irel

and

Less than 2 000 inhabitants 2 000 to 4 999 inhabitants 5 000 to 19 999 inhabitants 20 000 or more inhabitants

Source: OECD (2019) Key data on regional and local governments in the European Union

To mitigate the impact of fragmentation:

Productivity and socio-spatial segregation

Productivity falls by 6% for a doubling in

the number of municipalities

(for a given population size)

Source: Ahrend, Farchy, Kaplanis and Lembcke (2014), “What Makes Cities More 

Productive? Agglomeration Economies & the Role of Urban Governance: Evidence from 5

OECD Countries”, Journal of Regional Science

0

Sp

atia

l seg

reg

atio

n b

y in

com

e

Administrative fragmentation

Source: Brezzi, Boulant & Veneri (2016), “Income Levels And Inequality in Metropolitan 

Areas: A Comparative Approach in OECD Countries”, OECD Regional Development 

Working Papers, 2016/06

More fragmented metropolitan areas are

more segregated

000

7

Insights from the definition of Inter-municipal Co-operation

“Inter-municipal co-operation is defined as when two or more municipalities agree to work

together on any of the tasks assigned to them in order to gain mutual benefits and to

enhance the effective provision of services to citizens.”

– Council of Europe

https://www.coe.int/en/web/good-governance/imc-eap#:~:text=Inter%2Dmunicipal%20cooperation%20is%20defined,provision%20of%20services%20to%20citizens.

Inter-municipal cooperation is widespread in the OECD and it might increase after COVID:

• Firmly rooted in European and OECD municipal management practices

• It is relevant in all countries regardless of federal or unitary

• Relevant regardless of municipal size, or type (metropolitan, urban, or rural)

• Can support better governance of urban and metropolitan

The Advantages and Disadvantages to Co-operation

8

The advantages

Inter-municipal

cooperation

Efficiency gains and

cost savings

Investing at the right

scale

Gaining fiscal space

Better, more diverse local

services

Staff performance/

expertise

Innovation+

Technology

Alternative to mergers

Meeting

demands

of a crisis

OECD (2019) Making Decentralisation Work: A Handbook for Policy-makers, OECD Publishing, Paris

The disadvantages: co-ordination can have costs

• Number of municipalities and

ability to coordinate

• Extent of transaction costs

• Appropriate selection of public

service/activity

• National policies that encourage

its development

Disadvantages/challenges Contributors to success

OECD (2019) Making Decentralisation Work: A Handbook for Policy-makers, OECD Publishing, Paris

Expense

Proliferation of cooperative bodies

Governance challenges

Technical/equity challenges

Potentially ambiguous results

Inter-municipal Co-operation Practices in OECD Countries

11

Primary and secondary fields of cooperation among

metropolitan governance bodies in OECD countries

79%

66%

46%

25% 23% 23%14% 13% 13% 9%

13%

18%

39%

21%36%

13% 32%

2%2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Spatialplanning

Transport RegionalDevelopment

Water andSewage

Culture Wastemanagement

Tourism Health careand ageing

care

Environment Social welfareand housing

Primary field of activity Secondary field of activity

Source: (unpublished) OECD Metropolitan Governance Survey 2016 update; published in OECD (2017), Urban Transport Governance and Inclusive Development in Korea, OECD Publishing, Paris.

http://dx.doi.org/10.1787/9789264272637-en

?In Estonia

13

Formats for inter-municipal cooperation

Ela

bo

rate

d fro

m h

ttp

://w

ww

.mu

nic

ipa

l-co

op

era

tio

n.o

rg

Informal

handshake

No judicial

framework

Contract

Private or

public

framework

Institutionalised co-operation

Private law Public law

AssociationCommercial

company

Specialised

legal entity

Territorial

public law

entity

From soft arrangements to more formalised cooperation

Source of revenue depends on status

Australia,

England, Ireland,

New Zealand

Netherlands, Norway, Sweden Belgium,

France,

Netherlands,

Slovak

Republic

France, Italy,

Portugal,

Spain

Inter-municipal co-operation in practice

Objective Country Action/Area/Level of activity

Decentralisation of

tasks

Iceland

The Netherlands

• Social services for disabled

• Social services, employment, social welfare

Basic and non-basic

service delivery

Czech Republic

Finland

Norway

Switzerland

• 790 IMC structures: education, social care, health, culture, environment, tourism

• Health, social care, VET

• Crisis service centres for people subject to violence or threats of violence in close

relationships

• Since 2012 56% of municipalities increased arrangements; almost all cooperate with > 1

peer, in > 1 tasks

Covid-19 Denmark

Italy (Milan)

Latvia

Sweden

Portugal (Lisbon)

• Purchase of PPE (created a collaborative for joint procurement)

• 14 municipalities created info point (portal) for SMEs

• 8 municipalities to share supplies free PPE to seniors

• 4 largest municipalities guarantee a ½ billion line of credit for PPE for all

• 24 boroughs + City acquire basic needs for elderly, chronically ill; phone lines and WhatsApp

connections for in person and psychological support to isolated; marketplace to match skill

demand and supply helping start-ups.

Inter-municipal Co-operation and Estonia

15

Inter-municipal co-operation for Estonia?

• Reducing fragmentation?

• Managing decentralised services and administrative tasks?

• Better service delivery?

• Mitigating the fiscal and investment impact of COVID-19?

• Expense (incentive structures)

• Trust

• Power and resource asymmetries among partnering municipalities

• Data and information to identify actual need and optimal thresholds

• Harmonises service type, quality and availability among municipalities

• Eases delivery of “high-ticket” or very specialised tasks: transport, specialised social services, spatial planning

• Can relieve pressure of under-funded mandates, alternative to “up-scaling” tasks

What is the

objective?

Potential

benefits and

gains

Challenges in

the Estonian

context

Conclusions on inter-municipal co-operation for Estonia

Estonia’s advantages

• Existing legal framework

• Existing experience

• Many options to make it

work

• Room for a voluntary

approach

What Estonia and

Estonians gain

• More effective decentralisation

• Better quality, variety,

accessibility and availability of

services

• Better crisis management and

smoother possible recovery

Who loses?

Who wins?

• Government

• Municipalities

• Citizens

Thank you

Maria-Varinia Michalunmariavarinia.michalun@oecd.org