Inter-municipal co-operation provides an effective response to municipal fragmentation and capacity constraints. Across the OECD, many municipalities are very small - around 38% have fewer than 5 000 inhabitants and 25% fewer than 2 000 - creating structural challenges for administrative capacity, service delivery, and investment planning. These challenges are further intensified by demographic change, fiscal pressures, and increasing policy complexity.
Compared to other reform options, inter-municipal co-operation stands out as a pragmatic and flexible approach. While outsourcing can deliver short-term efficiency gains, it is often limited by market constraints, transaction costs and reduced public control, sometimes leading to remunicipalisation. Municipal mergers, although widely promoted, face strong political resistance and produce mixed economic results, with potential risks for local democracy and service accessibility. Asymmetric decentralisation helps align responsibilities with capacity but does not address economies of scale or cross-boundary challenges and may increase institutional complexity. In this context, inter-municipal co-operation emerges as a pragmatic and adaptable solution, enabling municipalities to pool resources, share expertise and manage services at the appropriate scale while preserving local autonomy and identity.
Inter-municipal co-operation allows municipalities to address challenges that extend beyond administrative boundaries, making it a key tool for managing demographic change, urban growth and functional territorial dynamics. As demographic decline and ageing reshape many OECD regions – often at the scale of labour markets or service catchment areas – co-operation enables municipalities to sustain essential services, adapt infrastructure in low-density or shrinking areas, and improve accessibility for ageing populations. In growing urban and metropolitan regions, it supports co-ordination of transport, land use and environmental policies across fragmented jurisdictions, generating efficiency gains and addressing fiscal imbalances linked to centrality costs. More broadly, it strengthens urban–rural linkages and promotes integrated territorial development by aligning policies with functional geographies rather than administrative borders.
Inter-municipal co-operation takes diverse and flexible forms adapted to local contexts. Now widespread across OECD countries and increasingly beyond, arrangements range from informal co-ordination and contractual agreements to fully institutionalised entities with dedicated governance, resources and delegated competences. According to the 2025 Implementation Report of the OECD Recommendation on Effective Public Investment Across Levels of Government, 18 OECD countries have legal frameworks for joint entities, 18 for co-operative agreements, eight for shared services agreements, and three for supra-municipal authorities. These models vary in their level of integration, with more formal structures supporting long-term and multi-sectoral co-operation. While most systems rely on voluntary approaches, some introduce mandatory co-operation for specific services or smaller municipalities. In practice, countries combine multiple forms reflecting administrative traditions and territorial diversity. Co‑operation is most common in sectors requiring economies of scale and cross-boundary co-ordination – such as infrastructure and spatial planning – highlighting its role as a versatile tool to improve efficiency and service delivery.
Inter-municipal co-operation can generate significant efficiency, capacity and strategic gains, but outcomes depend on design and implementation conditions. When well designed, it enables municipalities to achieve economies of scale, improve service quality and strengthen administrative and technical capacity, particularly in capital-intensive sectors such as water, waste or spatial planning. It also supports joint investment, enhances access to external funding, promotes fiscal sustainability and solidarity, and improves co-ordination at the scale of functional territories. At the same time, it offers flexible governance arrangements that preserve local autonomy while allowing deeper integration over time. However, benefits are not automatic: co-operation can increase administrative complexity, create overlaps, generate political tensions and raise accountability or financial risks if poorly designed. Empirical evidence remains mixed, with stronger efficiency gains in technical services and smaller municipalities. Overall, inter-municipal co-operation is a powerful but context-dependent tool requiring appropriate policy frameworks.
Effective inter-municipal co-operation depends on enabling conditions that support collaboration in practice. Balanced governance arrangements ensuring fair representation of municipalities of different sizes, combined with trust, political leadership and sustained dialogue, are essential. Gradual implementation and external support – such as shared service centres or EU instruments – help build confidence and demonstrate benefits. Transparency, accountability and citizen engagement are critical to maintain legitimacy, requiring clear oversight and accessible information. Reliable data, standardised systems and robust monitoring frameworks further support evidence-based decision making and strengthen trust.
Building on these conditions, three inter-connected frameworks underpin effective co-operation: legal, institutional and fiscal. A clear and flexible legal framework provides certainty, defines roles and responsibilities, and offers a range of co-operation models while preserving autonomy. Consolidated and accessible legislation reduces fragmentation and facilitates implementation, while allowing municipalities to choose appropriate forms and experiment through pilot projects.
An effective institutional framework allows to align functions, territorial scales and co-operation models with service needs. It requires defining functional boundaries beyond administrative borders, balancing flexibility and coherence in the delegation of competences, and selecting appropriate governance models depending on the complexity and duration of tasks. Strong support from higher levels of government – through policy direction, incentives, technical assistance and co-ordination tools – is essential to scale up co-operation and strengthen implementation capacity.
A solid fiscal framework is equally critical to enable co-operation to emerge, function effectively and endure over time. In the short term, this includes removing disincentives for co-operation and providing targeted incentives. In the long term, it implies ensuring stable and diversified funding. Sustainable financing typically combines municipal contributions, intergovernmental transfers, own-source revenues and access to borrowing, while temporary instruments such as EU funds are most effective when anchored in permanent governance structures. Effective arrangements also require budget autonomy, transparent financial management and fiscal solidarity mechanisms to address disparities and compensate centrality costs.
Taken together, the analysis and country snapshots presented in this report show that inter-municipal co-operation has become a central component of local governance across OECD and accession countries, albeit with significant variation in forms and outcomes. The diversity of approaches underscores the need for context-specific solutions reflecting national traditions, territorial structures and local capacities. Overall, inter-municipal co-operation stands out as a versatile and evolving policy instrument whose continued development will depend on governments’ ability to learn from practice, adapt frameworks over time and foster a culture of collaboration across levels of governments.