The amalgamation of local governments has been touted as one of the main methods to improve service delivery and increase fiscal capacity. While there have been a number of research papers looking at the experience there is still some question of the validity of this based on some hard quantitative data over a time frame.
It is instructive to look at three countries (Lithuania, Ukraine and Albania) that have undertaken large-scale amalgamation over a significant number of years to see if amalgamation improved service delivery, fiscal capacity and citizen engagement. Lithuania undertook amalgamation nearly two decades ago, while Ukraine and Albania undertook amalgamation within the past decade.
Amalgamation and Service Delivery Performance: The Case of Lithuania
Lithuania underwent an amalgamation over the past three decades going from 581 local governments in 1994 to 60 municipalities as of 2021. This amalgamation produced a high level of population among these municipalities with an average of 47,000. This is one of the highest population levels in Europe. The structure of government is based on unitary system with one tier of local self-government into 10 counties and 60 municipalities. On this basis and the longevity of the amalgamation, Lithuania provides a test case of how amalgamation has impacted local service delivery. The service delivery performance study is based on analysis of these 60 units.
A very detailed and data driven study of the performance of service delivery in the amalgamated local governments is presented in a study prepared by the Center for Economic Studies and Ifo Institute (CESifo) titled “A Simple Four Quadrants Model to Monitor the Performance of Local Government.”
The study classified local government performance into four categories or quadrants illustrated in the following:
| Quadrant II-Efficient Actual output greater than Standard output Actual expenditure lower than Standard expenditure | Quadrant I – OVER STANDARD Actual output greater than Standard output Actual expenditure greater than Standard expenditure |
| Quadrant III – UNDER STANDARD Actual output lower than Standard output Actual expenditure lower than Standard expenditure | Quadrant IV – NON-EFFICIENT Actual output lower than Standard output Actual expenditure greater than Standard expenditure |
The application of this methodology was developed in a study titled “Report No. 6: Municipal Debt Restructuring: Design a Tool for the Evaluation of the Long Run Sustainability of LGs Financial Structure. Final Report issued under Grant Agreement No. SRSS/S2018/028. The analysis looked at five service areas: (1) Education, (2) Social Security, (3) Recreation, culture and religion, (4) General Administration, (5) Housing and utilities. The data was collected for these areas over the years 2013 to 2018.
The following tables provide the summary of the results of this performance monitoring system with the number of municipalities in each quadrant. The two upper quadrants, Quadrants I and II, would be those with acceptable performance, while two lower quadrants, Quadrants III and IV, would indicate an unacceptable or lower level of performance in the service area.
Education
| Quadrant II-Efficient 4 | Quadrant I-Over standard 20 | 24 40% |
| Quadrant III-Under Standard 24 | Quadrant IV Non-Efficient 12 | 36 60% |
Social Security
| Quadrant II-Efficient 9 | Quadrant I- Over Standard 23 | 32 53% |
| Quadrant III-Under Standard 17 | Quadrant IV- Non-Efficient 11 | 28 47% |
Recreation, Culture and Religion
| Quadrant II-Efficient 14 | Quadrant I- Over Standard 20 | 34 57% |
| Quadrant III- Under Standard 19 | Quadrant IV-Non-Efficient 7 | 26 43% |
General Administration
| Quadrant II-Efficient 17 | Quadrant I-Over Standard 14 | 31 52% |
| Quadrant III-Under Standard 18 | Quadrant IV-Non-Efficient 11 | 29 48% |
Housing & Utilities
| Quadrant II-Efficient 12 | Quadrant I- Over Standard 12 | 24 40% |
| Quadrant III- Under Standard 30 | Quadrant IV-Non-Efficient 6 | 36 60% |
The two service sectors, Education and Housing & Utilities demonstrate a significant level of underperformance among the local units. With the other sectors, there is roughly a 50% of performance to non-performance comparison, with the exception of the Recreation, Culture and Religion service area.
It would be reasonable to expect that after nearly two decades of amalgamation, there would be a better level of performance than approximately one-half or more of the local government units at a low-performance level of either under standard or non-efficient.
Amalgamation and Fiscal Capacity of Local Government Units: The Case of Ukraine
The amalgamation of local government units in Ukraine beginning in 2015 and extending to 2019 has been much praised and extensively researched. It is arguably the largest reduction of local government units by merging approximately 10,000 units into approximately 1500. While it began as a voluntary merging, it was later made a mandatory merging by the central authorities.
Given the number of years that have passed since the final amalgamation, it should be apparent the impact on the fiscal capacity and sustainability of the merged units. The measure is largely based on whether the merged units are fiscally self-sufficient or still need substantial subsidy support from the central-level transfers.
A recent report by the ULEAD with Europe project funded in Ukraine by the EU and other donors has supported the development of financing approaches for the local governments and provides some useful information. The report is titled “Assessment of the Impact of Changes in the Personal Income Tax Allocation Mechanism on the Municipal Budgets”.
Some data provided in Annex A that identifies the number of local government units in various population segments and urban/rural (remote) classifications indicates the number of units that do not receive transfers/subsidies as opposed to those that receive central government transfers/subsidies. The breakdown by these classifications in shown in the following table.
| Classification | Not Receiving Equalizing Grants | Receiving Equalizing Grants |
| Urban Units with population between 100 and 500k | 21 | 10 |
| Urban Units with population between 50 and 100K | 24 | 31 |
| Suburban Units with population between 10 and 50K | 83 | 179 |
| Remote Units with population between 10 and 50K | 125 | 335 |
| Suburban Units with a population of less than 10K | 124 | 296 |
| Remote Units with a population of less than 10K | 41 | 163 |
| Total | 418 30% | 1014 70% |
Annex A: Grouping of Municipalities, p. 32
After nearly five years of full-scale amalgamation of the units, 70% of the units still require some state transfers/subsidies to finance the services that are assigned to them. The blame for this situation, according to the ULEAD expert reports, is that local governments are receiving the PIT transfers based on the employment location of the employee, rather than the location of the residence of the employee. The recommended solution is to make the PIT shared based on the residence of the employee. However, the redistribution of the PIT on this basis, which would largely be from the larger population/economic units to the poorer rural units, is practically impossible to implement and probably would not significantly close the fiscal gap of these poorer units.
Amalgamation and Citizen Choice: The Case of Albania
The research is reasonably clear that amalgamation does not produce the improvements in service delivery efficiency that is expected, nor the improvement of the fiscal situation of the merged local units. So, one might wonder, why does amalgamation continued to be promoted by the donor organizations and adopted by governments.
As it turns out, the majority party of the governing coalitions have discovered that amalgamation is a useful cover to engineer the gerrymandering of political boundaries to enhance their election possibilities.
The impact of the amalgamation of local government units in Albania, before and after local government elections, is quite interesting. Prior to the amalgamation in 2015 there had generally been competitive elections in the local units across the country with the two main parties, Social Party and Democratic Party, holding a number of mayor and council positions in traditional strongholds and being competitive in some of the larger cities. All this changed after amalgamation.
Three local government elections have been held with the 61 amalgamated units in 2015, 2019, and 2023. The change in voter turnout is significant. In 2015 it was 47,3%, in 2019 it was 22.9% (the opposition boycotted the election), and in 2023 it was 38.23%. Prior to the amalgamation voter turnout had generally been around 50% or more of the electorate. For further details, click here.
Following the amalgamation, the majority Socialist Party won the great majority of local government elections for mayor and councils. In the 2023 elections, the majority Socialist Party mayor candidates won 53 of the 61 municipalities and held significant majorities on 57 of the 61 councils. For further details, click here.
Clearly, the change in the possibility of citizen choice and local representation was impacted by the way in which the amalgamation was implemented.
Concluding thoughts
The above cases generally represent and backup the research that has been done on the impact of amalgamation on service delivery, fiscal capacity, and citizen choice and participation in local elections. Amalgamation for the most part has not produced the results that were promised or expected in service delivery and fiscal capacity and has been a negative impact on democratic processes and citizen participation.
This blog, authored by Glen Wright (Co-Chair, LPSA ECA Regional Working Group) in March 2025, seeks to stimulate further dialogue on how local government amalgamations influence service delivery, fiscal capacity, and citizen engagement across three countries.
