More for less or less for more? Government spending efficiency in CESEE

This paper examines the evolution of government size, effectiveness and spending efficiency in eleven Central, Eastern and Southeastern European (CESEE) EU member states over the period from 1996 to 2024. While public spending in CESEE has risen moderately, CESEE governments have remained relatively lean compared with the rest of the EU. Government effectiveness has improved overall but unevenly across CESEE countries. Using a Data Envelopment Analysis framework, we find a pronounced asymmetry between input- and output-based efficiency. CESEE countries perform broadly in line with the rest of the EU in terms of input efficiency – after having outperformed the EU in earlier periods. However, they exhibit a persistent gap in output efficiency. While this gap has narrowed somewhat, output-based efficiency has largely stagnated since around 2012 at levels well below the EU benchmark. Returns-to-scale patterns indicate that CESEE governments tend to operate at “too small” input scales; yet, in most cases they still generate sub-proportional output gains, pointing to structural weaknesses in the spending-performance nexus. Overall, improving administrative capacity and the quality of public spending appears, from an efficiency perspective, more promising for enhancing government performance than further fiscal restraint.