Economies of Scale – Empirical Evidence from the Czech Republic

In accordance to the principle of decentralization, local governments play important role in the economy and public administration since 1990 in the Czech Republic. The country belongs to countries with the most territorial fragmentation of municipalities (with Slovakia, Hungary or Austria). In this context, there is the relationship between economic performance and the size of a municipality very often discussed and thus the problem of existence of economies of scale in current high territorial fragmentation of municipalities. The issue becomes very relevant in the present time after global financial crisis which has had a significant impact on local governments in the conditions of the Czech Republic. The paper analyzes the dependence of the per capita costs on choosing public service of local government and the size of municipality in terms of number of inhabitants. Based on the results authors try to determine the optimal size of municipality.