Secession of municipalities and economies of scale: Evidence from Brazil

In the 1990s, there was a growing process of administrative decentralization that culminated in the creation of 1,016 new municipalities in Brazil. The aim of this paper is to verify the impact of the municipal secessions on the public expenditures and its association with economies of scale. Based on a Differences‐in‐Differences methodology, the obtained set of evidence indicates that those municipalities that underwent a secession process increased their per capita capital expenditures by 14.7 percent. In addition, we show evidence that strongly suggests that this increase in expenses can be explained by a reduction in economies of scale and rent‐seeking behavior.