possible that salary limitations prevent small governments from hiring qualified personnel resulting in lower efficiency. Conceição Sampaio de Sousa and Ramos (1999) find that technical efficiency is indeed lowest among small municipalities. One might also suspect that government officials in small localities are subject to stronger political pressure from individuals that might cause them to alter input allocations. Second, a direct measure of scale efficiency can be used. Scale efficiency is the ratio between efficiency measures calculated using constant returns to scale and variable returns to scale technology (De Borger & Kerstens, 2000).

Empirical evidence on the relationship between size and efficiency is sparse. Using data for 589 local governments in 1989, De Borger & Kerstens (2000) find that Belgian municipalities, with an average population of 16,700 (at that time) and a maximum of 485,000, are generally too large. The authors note that this result is consistent with most past Belgian studies.<sup>12</sup> Conceição Sampaio de Sousa and Ramos (1999) find that Brazilian municipalities are too small. Given the limited amount of evidence, continued research in this area is necessary to provide reliable insights for policymakers faced with the question of whether or not to amalgamate.

Results from De Borger and Kerstens indicate that income level, local government financing, political indicators, and citizen participation are significant indicators of efficiency. Efficiency was lower among municipalities with higher per capita incomes. The authors argue that this might be because government officials and taxpayers in higher income municipalities have lesser incentives to monitor spending. Given a greater fiscal capacity, it is not as difficult for government officials to increase revenues. Also, the opportunity cost of monitoring expenditures is higher for taxpayers as they forfeit a high wage by taking time to observe government activities. Intergovernmental grants are found to decrease efficiency and imposition of a local income tax contributes positively to performance. De Borger and Kerstens note that previous literature provides an explanation for these findings. Citizens are likely to notice comparatively higher local tax rates and seek an explanation.<sup>13</sup> In addition, people will hold local officials more accountable for resources that are directly raised in the community. With the use of block grants, the costs of inefficiency are distributed across a broader population.<sup>14</sup> Further, local voters may be unaware that block grants have been provided so they are less effective at holding officials accountable.

Political indicators such as number of coalition parties or presence of the socialist party were found to have negative and positive effects respectively. Little evidence for the significance of political factors is found in Greek or US studies.<sup>15</sup> Using education level of adults as a proxy, De Borger and Kerstens find citizen participation to have a positive effect on efficiency.

> 12 Vanden, Tulkens and Jamar (1993) and Vanden (1997). 13 Spann 1977.

> 14

> De Groot and Van der Sluis (1987), Silkman and Young (1982), and Wyckoff (1990). 15

> Athanassopoulos and Triantis (1998), Hayes and Chang (1990), and Liner (1994).

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