1. Setting the scene

Depopulation is a challenge for many rural areas in OECD countries. The long-term effects are a declining tax base, a higher share of elderly people who are less mobile, a greater per head cost in the provision of public services (OECD, 2021[1]) as well as vacant homes and deteriorating housing quality, among others. A shrinking population also has considerable negative effects on the provision of local infrastructure. This is especially the case for services such as water supply, sewerage, public transportation, education and healthcare that benefit from economies of scale. As populations shrink, these networks become more expensive to maintain. Adding to the challenge is eroding tax bases, which make it harder for local governments to find resources to maintain these basic infrastructures. As people are increasingly attracted to densely populated areas with better opportunities, the trend of depopulation in rural areas is likely to continue into the future. Indeed, across OECD countries, the share of the national population living in metropolitan regions increased between 2001 to 2018 in all except one (Greece) (OECD, 2020[2]).

Estonia’s total population, which amounted to 1.33 million inhabitants in 2020, shrank by 15% since 1991. This decline has not happened evenly across Estonia. Population growth occurred only in the larger urban areas of Tallinn and Tartu, while rural and remote urban areas have been shrinking rapidly. Ever since Estonia regained its independence in 1991, the population has declined by more than a quarter in more than half of Estonia’s counties and some such as Ida-Viru in the northeast have lost more than a third of its population (Statistics Estonia, 2021[3]).

This context requires policy responses in a number of areas to adapt to the changes in settlement structure. Tackling current gaps in service provision and adapting to demographic change requires mobilising many layers of government. Effective vertical and horizontal co-operation within a multilevel governance framework and more cross-sectoral co-operation at the central government level is needed to improve the efficiency and impact of policy actions. Land use needs to become more efficient and spatial planning frameworks more coherent to tackle depopulation and shrinkage. Most importantly, these responses need to be approached from a spatial framework that aligns policies to jointly address shrinkage issues in a coherent way. This is because the consequences of shrinkage, whether it be declining taxes, greater per capita service or infrastructure costs, or indeed vacant homes, manifest differently across space. The objective of this report is to assess the current situation in Estonia across these policy areas and recommend spatial policy interventions that manage the decline of remote regions in a sustainable way. Accordingly, this chapter sets the scene by assessing the current demographic challenges Estonia is facing and presenting key facts relevant to the spatial interventions needed to address them.

A traditional way to address population shrinkage at the regional and local government levels in OECD countries has been the “going for growth” policy, in other words trying to reverse shrinking trends and stimulate population growth (ESPON, 2017[4]). However, a completely different approach has recently begun to receive attention. Specifically, it has been argued that a “coping with decline” strategy forms a more realistic way forward for declining population regions and municipalities. This strategy, also called “smart shrinking” or “smart adaptation”, means that shrinkage is accepted and the focus is on measures to adapt to its economic and social consequences (Haase et al., 2012[5]). For example, remote rural areas in Nordic countries have begun to adapt to shrinkage by aiming to maintain regional attractiveness, through investments in the diverse natural and cultural assets that differentiate them from urban areas (Kull et al., 2020[6]). These efforts have picked up pace since the outbreak of the COVID-19 pandemic. Importantly, adapting to shrinkage should go hand-in-hand with measures to promote economic development through measures such as smart specialisation, in order to maintain the vitality of shrinking regions.

In practice, four types of practical policy responses at the subnational government level have been identified by researchers: i) trivialising shrinkage; ii) countering shrinkage; iii) managing shrinkage; and iv) utilising shrinkage (Figure 1.1) (Haase et al., 2012[5]; Hospers and Reverda, 2015[7]). The “trivialising” approach refers to a situation where local policy makers challenge demographic local shrinkage projection data and offer no response. Under a “countering” approach, policy makers do identify the problem but offer only a counter-strategy focused on attracting new residents and firms to the local jurisdiction. The “managing” approach, in turn, focuses on improving quality of life for the residents that decide to stay, instead of focusing on how to attract people from outside. Finally, under the “utilising” approach, policy makers see shrinking municipalities as societal laboratories to test new methods, under the assumption that a municipality’s quality of life does not necessarily depend on population density.

The “trivialising” approach is problematic because the approach is likely to lead to problems related to vacant housing, lower tax bases, budget deficits and indebtedness, among others. The “countering” strategy, in turn, requires realistic growth prospects to be successful and is likely to need strong financial support from the central government. The “managing” approach is perhaps the most realistic strategy, especially in a situation where the population has already declined for a long time and where there are no prospects for growth policy in the foreseeable future. The “utilising” approach works only if residents are able and willing to pay higher taxes for local public services or if there is enough private service capacity to replace the public service provision.

The recommendations throughout this report aim at a generalisation approach that combines growth and shrinkage strategies based on spatial interventions in key policy areas. A generalisation approach combines the “countering”, “managing” and “utilising” approaches to focus more on current residents than on newcomers (Hospers and Reverda, 2015[7]). This includes efforts to maintain place attractiveness and quality of life as well as efforts to mitigate the negative impacts of depopulation. This “generalising” policy is however challenging from a governance aspect and requires skilled local government management as well as active and engaged local decision-makers.

Estonia is located on the eastern shores of the Baltic Sea, bordering the Gulf of Finland in the north, Latvia in the south and Russia in the east. Besides three main cities (Tallinn, Tartu and Narva) concentrating about half a million inhabitants, its relatively small population of about 1.3 million inhabitants is sparsely spread over the territory. Without a significant push in international in-migration, Estonia is projected to lose population in the next decades – especially in low-density rural areas.

In the midst of slow population growth, people in Estonia have favoured moving into urban areas and away from remote areas. In a larger context within Europe, all Estonian regions besides North Estonia (where the capital Tallinn is located) are part of a group that face the largest challenges from depopulation because they are far away from centres of growth, with lower quality services and housing.

This section first reviews the current settlement patterns and population distribution in Estonia and then continues with an analysis of the past and future main demographic trends shaping the provision of services.

The 1.3 million inhabitants of Estonia are spread over 45 000 km² of territory and 5 small (TL3) regions classified based on the OECD access to cities regional typology: one region with a city of more than 250 000 inhabitants (North Estonia, where Tallinn is located); two regions with or near a small or medium city (Northeast Estonia, hosting Narva, the third city in terms of population, and Southern Estonia, hosting the second largest city Tartu); and two remote regions, Central and West Estonia (Figure 1.2). The regions of Central and West Estonia are remote and sparsely populated, even though, like the rest of the country, these regions are relatively flat. In this sense, Estonia’s depopulation of remote regions is not necessarily linked to difficult access due to topographic conditions as in other remote regions. The maximum elevation in the country (317 metres) is found in the south. All regions in Estonia, except Southern Estonia, are coastal regions and the territory includes about 1 500 islands and islets.

For statistical and policy purposes, there are 15 municipalities classified as urban or towns (linnad, singular linn) and 64 classified as rural or parishes (vallad, singular vald). The capital area of Tallinn (with a population of 438 341 inhabitants) and the main university city area of Tartu (with a population of 95 430) form about 40% of the total population of Estonia.

Commuting flow data for 2018 shows that Tallinn and Tartu and their areas of influence concentrate the largest share of activity in the country, as measured by flows. There are in fact significant flows between Tallinn and Tartu, as the 2 main cities are about 2 hours away by car. Narva and smaller towns outside these main cities also concentrate small commuting flows around their areas of influence.

Population declined from 2000 to 2015 and has increased slightly since 2016 thanks to return immigration (Estonian Ministry of Finance, 2019[10]). At the county level, the population declined in 2000-20 in all counties except for Harju where Tallinn is located. Tartu (in the east), Lääne-Viru and Pärnu (in the west) and Viljandi (in the south) accumulated a combined loss of over 23 000 people in the period. With a decrease from over 181 000 inhabitants in 2000 to about 132 000 in 2020, Ida-Viru – located on the eastern border with Russia – is the county with the largest population losses.

While birth rates in Estonia are similar to those in Europe, a large portion of population decline was nonetheless attributed to natural decrease between 2000 and 2020, though diminishing in absolute magnitude. Net migration remained negative until 2014 (Figure 1.4). Immigration experienced a jump from 3 904 in 2014 to 18 172 in 2019, overcompensating from a similar jump in emigration from 4 637 in 2014 to 12 801 in 2019. In 2020, Harju County (with net immigration of 3 924) and Ida-Viruy (with net immigration of -1 012) were respectively the 2 counties with the largest and smallest net migration in 2020.

At the regional level, the only metropolitan region (North Estonia) grew at a similar rate to other metropolitan regions in OECD countries (Table 1.1, see Box 1.1 for an explanation of the typology). This is in stark contrast to the rural regions in Estonia that all experienced population decline and is distinct from the trend across OECD countries that shows a steady (yet slower than the metropolitan regions) increase in population across rural regions (OECD, 2020[2]).

Demographic trends in Estonia are consistent with a pattern of deconcentrated urbanisation, that is, urban growth in the periphery of the largest urban centres. While population growth concentrated in the metropolitan region, the group of all cities lost 63 594 inhabitants between 2001 and 2017, while the group of all rural municipalities lost 14 663 (all municipalities below the 45 degree line in Figure 1.5). Tallinn gained 26 448 inhabitants in the period but other cities including Kohtla-Järve, Narva and Tartu lost over 12 000. On the other hand, some rural municipalities experienced considerable population gains in the period, including Põlva, Harku, Rae and Viimsi. These last three are located in the suburbs of Tallinn.

Estonia is also expected to age quickly in the coming years. In 2021, 19.8% of the population was 65 years old or over, while 2.6% were 85 years old or over. In 2045, the percentage of the population 65 and over is expected to increase to 25.5%, with 4.9% being 85 years old or over. These changes are not expected to occur evenly across regions. Already in 2021, the percentage of population 65 and over in the counties of Harju and Tartu was 17.8% and 18.1% respectively, lower than the percentage in the other counties combined, at 23.8%. This gap is expected to widen in 2045, with the percentages in Harju and Tartu counties expected to increase to 21.7% and 22.8% respectively, compared to 36.7% in the other counties.

Available population projections for Estonia show that the population of Estonia will shrink from about 1.28 million people in 2011 to about 1.17 million in 2035 – that is, the country is projected to lose about 114 000 people by 2035. Available national population projections for 2080 (Government of Estonia, 2021[14]) show population decline to below 1 million in the most pessimistic scenario of lower fertility, lower mortality and no migration.

According to internationally comparable projections, the yearly population decline in Estonia (-0.39%) is the 7th largest for European countries with available data, behind other small countries in the vicinity including Bulgaria (-0.68%), Latvia (-1.22%) and Lithuania (-1.6%). At the subnational level, all TL3 regions except for North Estonia are forecast to shrink by 2035. While Central Estonia (with the lowest population density) and Northeast Estonia (on the border with Russia) will experience the largest rate of decrease, with a projected population change of -1.3% (33 596 people) and -1.2% (38 151) respectively, Southern Estonia will experience the largest absolute decrease (50 740) (Table 1.2). Notably, declining populations in rural and remote regions are not unique to Estonia. Countries such as Germany, Japan, Latvia and Lithuania, as well as certain parts of Portugal and Spain, are experiencing a decline in peripheral regions, although the causes and magnitude of the decline vary across countries.

Digital connectivity is crucial for rural areas. It ensures that people and communities living in these areas can participate in day-to-day activities that are taken for granted in more densely populated areas. It is also critical to address the higher unit costs of delivering public services, including in sometimes challenging environments, as well as dealing with longer distances to markets. As such, digital connectivity is especially important in declining rural regions that face these challenges.

While Estonia has above average broadband connectivity, actual fixed download speeds in everyday use vary substantially across and within regions (Figure 1.7). In North Estonia, fixed download speeds are on average 18% above the national average but 36% below the national average in West Estonia.

Within TL3 regions, users in cities, towns and suburbs in North Estonia experience better connection speeds and users in rural areas experience worse connection speeds. Users in Tallinn experience connection speeds 28% above the national average and speed for users in Tartu aligns with the national average. Unlike users in towns and suburbs in the vicinity of Tallinn and Tartu, users in these types of areas in other regions experience speeds that are below the national average (Figure 1.7). In West Estonia for instance, speeds in towns and suburbs are 32% below the national average. Rural areas in all regions have lower connection speeds than the national average. The rural connectivity gap is largest in West Estonia, where users experience speeds that are 42% below the national average.

From 1989 until 1993, Estonia had 2 tiers of local self-government: the first comprised the rural municipalities and small towns, and the second was composed of 15 counties and the 6 main cities. In 1994, the model was reformed so that the county administration became part of the central government and the county governor became a representative of the central government. An important landmark in the Estonian local self-government was the establishment of the Association of Estonian Cities and the Association of Rural Municipalities in 1990. At about the same time, the Constitutional Assembly (1991-92) assigned a working group for the preparation of the formal legal foundation for local self-government. That work was completed in 1994 (Mäeltsemees, 2017[17]; Valner, 2017[18]).

From the very beginning of Estonia’s independence in 1991, there was much political debate about the multilevel governance model. Between 1995 and 2014, there were several attempts by successive governments to reform the Estonian subnational government structure, notably to reduce the number of municipalities by voluntary municipal mergers, but without major success. The sluggish development of the bottom-up initiative increased the political pressure for a state-led reform. In 2015, after many rounds of consultations and discussions, the preparations for a comprehensive reform were started. As a result, the Administrative Reform Act was accepted by the parliament (Riigikogu) in June 2016. The act introduced a minimum municipal population size of 5 000 inhabitants and 11 000 as a recommended size. It also set out the different stages and the timetable for implementing the reform.

The reform was finalised in 2017 and the new municipal structure was adopted at the beginning of 2018. The reform significantly changed the structure of the Estonian local government. It stripped from county governments most of their functions and reallocated their tasks to ministries and municipalities. The counties (maakond, Figure 1.8) did not cease to exist, however, as they still represent some central government in the regions and county borders are used as statistical units (Mäeltsemees, 2017[17]; Valner, 2017[18]).

Furthermore, co-operation between municipalities continued to be arranged within the county borders. Depending on the task, there are currently between 11 and 15 joint municipal bodies organised at the county level. Currently, co-operation in development planning has been arranged through 15 counties and municipal co-operative associations have been arranged through 13 counties. There are currently 11 co-operative transport centres, of which 9 are county-based and 2 are region-based. The membership of such organisations is voluntary for the municipalities. There is no directly elected body for the co-operative bodies; instead, the member municipalities appoint their representatives to the council. By law, the County Local Government Associations must be involved in the management of public transport in the county where necessary. The county municipality organisations promote municipality co-operation also by fulfilling voluntary tasks. In addition to the county municipal associations, there is a national municipal association, called the Association of Estonian Cities and Rural Municipalities. This association represents the member municipalities in negotiations with the central government.

The municipal reform also reduced the number of municipalities by mergers, from 213 to 79. The size of municipalities in 2019 varied from 141 inhabitants on Ruhnu Island to 434 562 inhabitants in Tallinn. The average municipal population is 16 559 and the median population is 7 372.

The Estonian Constitution provides for autonomous local governments and the Local Government Organisation Act sets the administrative framework for municipalities (Box 1.2). New functions can be assigned to municipalities only by law or mutual agreement. The external monitoring of the municipalities is the responsibility of the government ministries and the State Audit Office. The Ministry of Finance is responsible for the legal framework of local government functions. It develops the financing (including equalisation and support fund division) and financial management principles of local authorities.

This report is organised into four chapters. The second chapter, “Adapting land use and spatial planning to shrinkage in Estonia”, presents the recent spatial development patterns of Estonia, along with the spatial planning system. It then outlines the negative consequences these development patterns and planning practices have and presents policy recommendations that aim to tackle depopulation and demographic change from a land use and spatial planning perspective. The third chapter, “Financing local public services and infrastructure in Estonia: Challenges and ways forward”, discusses the Estonian multilevel governance and municipal financing framework, especially from the perspective of depopulation and shrinkage. It makes proposals on how to address the key challenges posed on Estonia’s governance and municipal finance model that are caused by shrinkage. The final chapter, “The present and future provision of education in Estonia”, touches upon the education sector, which is by far the most important municipal task when considering municipal expenditures. It focuses on the question of school network adaptation and presents a series of recommendations to align all actors in Estonia around adapting the school network to demographic change while striving to ensure access to high-quality education for all students.

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