Remunicipalization of Local Public Services: Policy Drivers and Changing Prices

Abstract

Remunicipalization is triggered primarily by disappointment with the outcomes of private management of local public services, but an ideological preference for public management might also play a role. Even though urban water delivery is the service most affected by remunicipalization in developed countries, little empirical evidence is available on its effects. Using a sample of Spanish municipalities, this paper assesses the change in the price of urban water following remunicipalization as compared to privatization. The main finding is that remunicipalization leads to smaller increases in price; this outcome is, however, due to a few atypical municipalities with abnormally low prices for water before the policy reform. Once these influential observations are controlled for, the question of whether the reform consists of remunicipalization or privatization makes no difference regarding the change in prices. It is also found that remunicipalization is much more likely in local councils governed by extreme left-wing parties.