Predicting economies of scale in Brazilian municipal expenditure: Panel econometrics and interpretable machine learning

Municipal size is a persistent question in urban planning and public finance because small jurisdictions may face high per capita costs, whereas larger jurisdictions may face congestion and administrative complexity. This study compares panel econometric and interpretable machine-learning models for real municipal operational expenditure per capita in Brazil. The analysis uses 49,228 municipality-year observations for 5,568 municipalities from 2013 to 2021 and evaluates prediction through municipality-holdout, temporal-holdout, and state-block designs. Histogram Gradient Boosting performs best for unseen municipalities and held-out states, while a municipality fixed-effects-style predictor performs best for later-year prediction of municipalities already observed in the panel. The results indicate strong economies of scale among small municipalities followed by a broad low-cost range rather than one universal optimum. Controlled econometric and spatial-error models imply minima near 143,000 to 176,000 residents, while a reduced-form pooled OLS model excluding grants implies about 232,000 residents. The strongest boosting models show no clear interior upturn within the evaluated grid, with predicted expenditure remaining within 10% of the minimum above approximately 48,000 to 53,000 residents. Grouped SHAP results rank population first, followed by grants and local economic capacity. Residual Moran tests show that unexplained expenditure differences remain spatially clustered. The findings support spatially informed expenditure benchmarking and caution against consolidation policies based on one fixed population threshold.

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Publication Details

Journal
Environment and Planning B Urban Analytics and City Science
Published
2026-11-07
DOI
https://doi.org/10.1177/23998083261502609
Primary Topic
Local Government Finance and Decentralization
Type
article
Field-Weighted Citation Impact
0.00

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article

Predicting economies of scale in Brazilian municipal expenditure: Panel econometrics and interpretable machine learning

Michael Alexander Kortt, Luan Vinícius Bernardelli, Mecit Can Emre Simsekler, Khaled M. Toffaha et al.
1 links
Environment and Planning B Urban Analytics and City Science
Local Government Finance and Decentralization
article

Predicting economies of scale in Brazilian municipal expenditure: Panel econometrics and interpretable machine learning

Michael Alexander Kortt, Luan Vinícius Bernardelli, Mecit Can Emre Simsekler, Khaled M. Toffaha, Albert Wijeweera
article en

Abstract

Municipal size is a persistent question in urban planning and public finance because small jurisdictions may face high per capita costs, whereas larger jurisdictions may face congestion and administrative complexity. This study compares panel econometric and interpretable machine-learning models for real municipal operational expenditure per capita in Brazil. The analysis uses 49,228 municipality-year observations for 5,568 municipalities from 2013 to 2021 and evaluates prediction through municipality-holdout, temporal-holdout, and state-block designs. Histogram Gradient Boosting performs best for unseen municipalities and held-out states, while a municipality fixed-effects-style predictor performs best for later-year prediction of municipalities already observed in the panel. The results indicate strong economies of scale among small municipalities followed by a broad low-cost range rather than one universal optimum. Controlled econometric and spatial-error models imply minima near 143,000 to 176,000 residents, while a reduced-form pooled OLS model excluding grants implies about 232,000 residents. The strongest boosting models show no clear interior upturn within the evaluated grid, with predicted expenditure remaining within 10% of the minimum above approximately 48,000 to 53,000 residents. Grouped SHAP results rank population first, followed by grants and local economic capacity. Residual Moran tests show that unexplained expenditure differences remain spatially clustered. The findings support spatially informed expenditure benchmarking and caution against consolidation policies based on one fixed population threshold.

Environment and Planning B Urban Analytics and City Science
Khalifa University of Science and Technology (AE), Universidade Federal de Goiás (BR)
Khalifa University of Science, Technology and Research
Sustainable cities and communities, Industry, innovation and infrastructure
Openalex Percentile: Top 7%
Local Government Finance and Decentralization
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