61 Rethinking local government: Essays on municipal reform - VATT

Do voters value <strong>local</strong> reprentation? Strategicvoting after municipal mergerstaking part in politics weakens. 16 Recently, Lassen and Serritzlew(2011) find using DID methods and the Danish municipality reform of2007, that jurisdiction size has a sizeable negative effect on citizens’beliefs in this respect, as perceived in a citizen survey. Turnout maydiminish in municipalities that undergo a merger due to an increase inpopulation size and the effect should be larger in small municipalitiesas they experience a relatively larger population increase. Reducedturnout would make pooling of votes even more crucial for thosewho vote in small municipalities.5.3 Institutional backgroundLocal <strong>government</strong>s play an important role in the economies of manycountries. In Finland, public goods and services are provided by twotiers of <strong>government</strong> where municipalities constitute the <strong>local</strong> level. 17Because of the variety of tasks assigned to them, municipalities areof considerable importance to the whole economy. The GDP share ofmunicipality spending is roughly 18 percent and they employ around20 percent of the total workforce. The bulk of Finnish municipalities’expenditures come from producing social and health care servicesand primary education. In most of these services, in addition tocosts, quantity and quality, also the location should be relevant forthe citizens. Municipalities fund their spending mostly through theirown revenue sources. The most important revenue source is the flatmunicipal income tax which the municipalities can set freely. Dueto extensive tasks and power in setting taxes, municipal councilsare relatively powerful compared to municipalities in many othercountries. An extensive central <strong>government</strong> grant system is used toequalize <strong>local</strong> cost and revenue disparities.The number of municipalities in Finland has diminished considerablysince the 1940’s as can be seen from Figure 1. In the 1960’s almost16 In political science this is coined as political efficacy. It can be further divided intointernal and external efficacy. The former refers to citizens’ beliefs that they are competentto understand and take part in politics and the latter to whether their participation may havean effect on policy outcomes.17 See Moisio et al. (2010) for details.138