The Causal Relationship Between Jurisdiction Size and Institutional Quality

Abstract

While the relationship between jurisdiction size and economic and electoral outcomes has been extensively studied, its causal impact on institutional capacity and quality remains unexplored. Leveraging the mergers of 197 Italian municipalities, we investigate changes in administrative quality using the Municipal Administration Quality Index (MAQI), a novel composite measure of local administrative capacity and quality based on three pillars: bureaucratic, political, and economic. Using a non‐parametric difference‐in‐differences approach, we find that mergers substantially improve administrative performance. This improvement is driven primarily by the enhanced quality of local politicians and strengthened economic‐fiscal performance, whereas bureaucratic efficiency improves only marginally. We demonstrate that these positive outcomes are attributable to economies of scale and the self‐selection of higher‐quality local politicians, who are drawn by the opportunity to earn higher wages. Our findings contribute to the broader debate on the optimal municipal size and demonstrate that municipal mergers among small municipalities can enhance the quality of local government.