Keywords: Government Size; Legislature Size; Law of 1/N; Natural Experiment; Sharp RDD.
We analyze the effect of council size on municipal expenditures by using a rich data set providing information on Italian municipal budgets over the period 2001-2007. The Italian law establishing that council size is a step function of population size allows us to estimate the effect of council size by implementing a Sharp Regression Discontinuity Design. We find a negative relationship between local government size, as measured by total expenditures per capita, and the council size, after controlling for the share of employees within local government apparatus, for the quality of public goods provided and for the degree of civicness: increasing the number of members within the council leads to a greater ability to control bureaucrats and consequently to a higher level of productivity in the public administration. Similar results are found when we consider expenditures that are more directly under control of bureaucrats, namely current expenditures per capita. Finally, increasing the number of legislators positively affects the level of efficiency/productivity of municipalities.