ifo Dresden berichtet 02/2018

Citizens go, spending stays: Shrinking cities suffer twice over

We show that in shrinking cities, total spending is declining more slowly than the population. This leads to an increase in municipal expenditure per inhabitant. In growing cities, on the other hand, we do not observe this effect; total expenditure grows at the same rate as the number of inhabitants. This different effect of growth and shrinkage is called cost retentiveness. Cost retentions do not affect all municipalities equally. Municipalities with low population fluctuations and an above-average share of investment expenditure can adapt their expenditure to demographic change. We find no evidence that the ageing of society is leading to changes in municipal spending.

Frei, Xenia and Rösel, Felix