Population Change and its Effects on Public Spending:Cost Efficiency Behaviors of Swedish Municipalities on the Case of School Expenditures

Abstract: The paper investigates the relationship between population changes and public spending. The main interest is hereby whether local governments can adjust their public spending in times of population decline. A Swedish case study is conducted on all 290 municipalities in regard to their comprehensive school expenses between 2005 and 2013. The theoretical framework incorporates economies of scale and cost stickiness and the methodology includes stochastic frontier analyses and log-annual change models accounting for fixed and variable costs. The paper applies advanced efficiency estimations in order to provide a benchmark analysis of the cost efficiency scores. As a result, the analysis draws a comprehensive picture on the causal effects of growing and declining populations in Swedish municipalities and finds that rural and peripheral regions – opposed to general expectations – are not necessarily the worst performers, but are able to adjust their public services according to their demographic shifts in the medium run.