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Does public sector inefficiency constrain firm productivity? Evidence from Italian provinces

Author

Listed:
  • Raffaela Giordano

    () (Bank of Italy)

  • Sergi Lanau

    () (IMF)

  • Pietro Tommasino

    () (Bank of Italy)

  • Petia Topalova

    () (IMF)

Abstract

This paper studies the effect of public sector efficiency on firm productivity using data from more than 400,000 Italian firms. Exploiting the large heterogeneity in the efficiency of the public sector across Italy’s provinces and the intrinsic variation in the dependence of industries on the government, we find that public sector inefficiency significantly reduces the productivity of private sector firms. The results suggest that raising public sector efficiency could yield large economic benefits: If the efficiency in all provinces reached the frontier, output per employee for the average firm would increase by 9%.

Suggested Citation

  • Raffaela Giordano & Sergi Lanau & Pietro Tommasino & Petia Topalova, 2020. "Does public sector inefficiency constrain firm productivity? Evidence from Italian provinces," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(4), pages 1019-1049, August.
  • Handle: RePEc:kap:itaxpf:v:27:y:2020:i:4:d:10.1007_s10797-020-09600-x
    DOI: 10.1007/s10797-020-09600-x
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    More about this item

    Keywords

    Public sector efficiency; Firm productivity; Regional development; Quality of government;

    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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