Local Governments in the Wake of Demographic Change: Evidence from German Municipalities

German municipalities are expected to suffer from intense demographic changes in the upcoming decades, not only in the form of population losses, but also through a changing demographic structure. We assess local governments' vulnerability to the fiscal consequences of these demographic transformations (using a sample of 1021 German municipalities) by determining the elasticity of local government cost functions to municipalities' demographic characteristics. Our findings indicate that smaller municipalities are especially vulnerable to increasing cost pressures. In the absence of increased higher-level government support, these findings would support a case for boundary reviews or more extensive intercommunal cooperation.