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Merging smaller municipalities would save up to EUR 130 million annually - Bank of Latvia
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    Merging smaller municipalities would save up to EUR 130 million annually - Bank of Latvia

    RIGA, June 10 (LETA) - Merging small municipalities and concentrating education, social protection and general government services in larger regions, up to EUR 130 million could be saved in local government budgets annually, according to the Bank of Latvia's researchers.

    The latest Bank of Latvia study has determined, using econometric methods, that there is a negative correlation between a local government's population and municipal spending per capita, that is, the smaller the municipality, the more expensive its functions are when the cost thereof is calculating per one resident.

    From the standpoint of economic theory, there are a number of reasons why the maintenance costs of municipalities with lower populations may be relatively high. In most cases, this is due to an increase in average costs as the volume of services provided reduces, says the study.

    The Bank of Latvia researchers believe that, if the current demographic trends continue, Latvia's population will keep decreasing in the coming decades, therefore regions' average populations will also decrease. In 2018, the average population of a region in Latvia was approximately 8,460, but by 2040 the average population is expected to be 15 percent lower, about 7,200 people. Based on the results of the study, the average maintenance cost per capita for municipalities where populations decrease this much would be about 2.1 percent higher than at present.

    If so, local governments' education, social protection and general government services could require nearly EUR 180 million more by 2040.

    The Bank of Latvia's experts believe that one solution to the problem is to improve the administrative-territorial division by concentrating the provision of services delegated to local governments in larger municipalities.

    Based on the assessments made in the study, the potential savings that could be brought about by the concentration of municipal services in administrative-territorial units with larger populations have been calculated. In regions with populations ranging from 10,000, to 20,000, municipal budgets' potential savings for education, social protection, and general government services could range from EUR 17 million to EUR 130 million per year.

    Taking into consideration that not all municipal functions have been analyzed in the study, the potential savings could be even higher, the Bank of Latvia points out.

    • Published: 10.06.2019 17:10
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