DYNAMIC-RESPONSES TO CHANGING DEMAND - A MODEL OF THE REALLOCATION PROCESS IN SMALL AND LARGE MUNICIPALITIES IN NORWAY

Local government priorities between local services are analysed in a c ommunity preference model emphasizing income effects and demographic f actors. The model is built into a partial adjustment framework with en dogenous speed of adjustment to study the dynamic responses of local g overnments to shifting demand. The empirical analysis of the reallocat ion process separates between small and large municipalities in terms of population size. Serious sluggishness of the adjustment is document ed, with large municipalities experiencing stronger inertia documented , with large municipalities experiencing stronger inertia than the sma ll. The small authorities have been able to respond more effectively t o the restructuring pressure from demographic shift.