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Incentive Schemes for Local Government: Theory and Evidence from Comprehensive Performance Assessment in England

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  • Benjamin Lockwood
  • Francesco Porcelli

Abstract

This paper studies Comprehensive Performance Assessment, an explicit incentive scheme for local government in England. Motivated by a simple theoretical political agency model, we predict that CPA should increase service quality and local taxation, but have an ambiguous effect on the efficiency of service provision. We test these predictions using a difference in difference approach, using Welsh local authorities as a control group, exploiting the fact that local authorities in Wales were not subject to the same CPA regime. To do this, we construct original indices of service quality and efficiency, using Best Value Performance Indicators. We estimate that CPA increased the effective band D council tax rate in England relative to Wales by 4%, and increased our index of service quality output also by about 4%, but had no significant effect on our efficiency indices. There is evidence of heterogeneous effects of CPA on efficiency, with some evidence that CPA impacted more on less efficient councils, and the ‘harder test’ from 2005-8 having a much bigger effect.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-05/cesifo1_wp3483.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3483.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3483

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Keywords: local government; incentives; efficiency; difference in difference; DEA;

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Cited by:
  1. Ivo Bischoff & Frédéric Blaeschke, 2013. "Incentives and Influence Activities in the Public Sector: the Trade-off in Performance Budgeting and Conditional Grants," MAGKS Papers on Economics 201320, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Ivo Bischoff & Frédéric Blaeschke, 2012. "Window-Dressing and Lobbying in Performance-Budgeting: a Model for the Public Sector," MAGKS Papers on Economics 201212, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Ben Lockwood & Francesco Porcelli, 2013. "Incentive Schemes for Local Government," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 11(1), pages 55-63, 04.

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