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Value for money? German local government efficiency in a comparative perspective

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  • Alexander Kalb
  • Benny Geys
  • Friedrich Heinemann

Abstract

In this article, we investigate the cost efficiency of German local governments in the state of Baden-Württemberg in 2004 using a stochastic frontier approach. Besides being the first study on German data, we add two elements to the literature. First, we provide a comparative perspective, allowing us to embed our results in the broader literature. Second, unlike most previous studies, we explicitly account for exogenous or nondiscretionary influences when estimating municipal efficiency scores. The results suggest that disregarding such exogenous factors can lead to significant and systematic bias in the estimated inefficiency levels. Particularly, underestimation of efficiency occurs for municipalities with high tourist activity, while the reverse is true for municipalities with high unemployment.

Suggested Citation

  • Alexander Kalb & Benny Geys & Friedrich Heinemann, 2012. "Value for money? German local government efficiency in a comparative perspective," Applied Economics, Taylor & Francis Journals, vol. 44(2), pages 201-218, January.
    • Handle: RePEc:taf:applec:44:y:2012:i:2:p:201-218
    DOI: 10.1080/00036846.2010.502110
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    1. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 1993. "The Measurement of Productive Efficiency: Techniques and Applications," OUP Catalogue, Oxford University Press, number 9780195072181, Decembrie.
    2. Tomoyasu Tanaka, 2006. "Cost Efficiency in Japanese Local Governments: the Economic Effect of Information Technology in Japanese Local Governments," ERSA conference papers ersa06p234, European Regional Science Association.
    3. Kalb, Alexander, 2009. "What determines local governments' technical efficiency? The case of road maintenance," ZEW Discussion Papers 09-047, ZEW - Leibniz Centre for European Economic Research.
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