The highly fragmented Spanish municipal map has been blamed for the lack of efficiency of the public services it provides. This paper explores the relationship between municipalities’ population size and the costs of providing local public goods and services. The analysis is undertaken using a dataset of 6,169 municipalities for the years 2007 and 2008. A set of variables accounting for cost and demand factors for public services, as well as the spatial interactions among neighboring municipalities, are also included. The regression findings show, on the one hand, that an increase in population size will only reduce provision costs in two expenditure functions: General Administration (up to 20,000 inhabitants) and Local Police (up to 500 inhabitants). On the other hand, no saving costs were found for Social Services, Street Cleaning and Water Services functions.

Key words: efficient public good provision, local public spending, municipal amalgamation, spatial econometrics.
JEL Classification: H1, H4, H72, C11, C21.