IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_2364.html
   My bibliography  Save this paper

Fiscal Decentralization and Public Sector Efficiency: Evidence from OECD Countries

Author

Listed:
  • Antonis Adam
  • Manthos D. Delis
  • Pantelis Kammas

Abstract

This paper attempts to identify the effect of fiscal decentralization on public sector efficiency (PSE). We employ data envelopment analysis on a panel of 21 OECD countries over the period 1970-2000 to construct two alternative PSE indicators that reflect the governmental goals of economic performance and stability. In turn, using a novel technique that merges the methodologies of Simar and Wilson (2007) and Khan and Lewbel (2007), we regress the PSE scores obtained on an extensive set of alternative fiscal decentralization measures. Backed by strong empirical results, obtained from a number of different specifications, we contend that PSE is increasing with fiscal decentralization.

Suggested Citation

  • Antonis Adam & Manthos D. Delis & Pantelis Kammas, 2008. "Fiscal Decentralization and Public Sector Efficiency: Evidence from OECD Countries," CESifo Working Paper Series 2364, CESifo.
    • Handle: RePEc:ces:ceswps:_2364
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2364.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eric Hanushek & Ludger Woessmann, 2012. "Do better schools lead to more growth? Cognitive skills, economic outcomes, and causation," Journal of Economic Growth, Springer, vol. 17(4), pages 267-321, December.
    2. Torsten Persson & Guido Tabellini, 2004. "Constitutions and Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 75-98, Winter.
    3. Alesina, Alberto & Devleeschauwer, Arnaud & Easterly, William & Kurlat, Sergio & Wacziarg, Romain, 2003. "Fractionalization," Journal of Economic Growth, Springer, vol. 8(2), pages 155-194, June.
    4. Khan, Shakeeb & Lewbel, Arthur, 2007. "Weighted And Two-Stage Least Squares Estimation Of Semiparametric Truncated Regression Models," Econometric Theory, Cambridge University Press, vol. 23(2), pages 309-347, April.
    5. Tavares, Jose, 2004. "Does right or left matter? Cabinets, credibility and fiscal adjustments," Journal of Public Economics, Elsevier, vol. 88(12), pages 2447-2468, December.
    6. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
    7. Besley, Timothy & Smart, Michael, 2007. "Fiscal restraints and voter welfare," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 755-773, April.
    8. Barankay, Iwan & Lockwood, Ben, 2007. "Decentralization and the productive efficiency of government: Evidence from Swiss cantons," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1197-1218, June.
    9. Hindriks, Jean & Lockwood, Ben, 2009. "Decentralization and electoral accountability: Incentives, separation and voter welfare," European Journal of Political Economy, Elsevier, vol. 25(3), pages 385-397, September.
    10. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
    11. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    12. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2005. "International Unions," American Economic Review, American Economic Association, vol. 95(3), pages 602-615, June.
    13. Torsten Persson & Guido Tabellini & Francesco Trebbi, 2003. "Electoral Rules and Corruption," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 958-989, June.
    14. Antonis Adam & Manthos Delis & Pantelis Kammas, 2011. "Public sector efficiency: leveling the playing field between OECD countries," Public Choice, Springer, vol. 146(1), pages 163-183, January.
    15. Jin, Jing & Zou, Heng-fu, 2002. "How does fiscal decentralization affect aggregate, national, and subnational government size?," Journal of Urban Economics, Elsevier, vol. 52(2), pages 270-293, September.
    16. Enrico Spolaore & Alberto Alesina & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December.
    17. Afonso, Antonio & St. Aubyn, Miguel, 2005. "Non-Parametric Approaches to Education and Health Efficiency in OECD Countries," Journal of Applied Economics, Universidad del CEMA, vol. 8(2), pages 1-20, November.
    18. Ernesto Stein, 1999. "Fiscal Decentralization and Government Size in Latin America," Journal of Applied Economics, Universidad del CEMA, vol. 2, pages 357-391, November.
    19. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1203-1250.
    20. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    21. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2007. "Decentralization and political institutions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2261-2290, December.
    22. Konstantinos Angelopoulos & Apostolis Philippopoulos, 2005. "The Role of Government in Anti-Social Redistributive Activities," CESifo Working Paper Series 1427, CESifo.
    23. Paul Belleflamme & Jean Hindriks, 2005. "Yardstick competition and political agency problems," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 24(1), pages 155-169, September.
    24. Wyckoff, Paul Gary, 1990. "Bureaucracy, Inefficiency, and Time," Public Choice, Springer, vol. 67(2), pages 169-179, November.
    25. Myerson, Roger B., 2006. "Federalism and Incentives for Success of Democracy," Quarterly Journal of Political Science, now publishers, vol. 1(1), pages 3-23, January.
    26. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    27. Jon H. Fiva, 2006. "New Evidence on the Effect of Fiscal Decentralization on the Size and Composition of Government Spending," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(2), pages 250-280, June.
    28. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
    29. Alesina, Alberto & La Ferrara, Eliana, 2005. "Preferences for redistribution in the land of opportunities," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 897-931, June.
    30. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, October.
    31. Myerson Roger B., 1993. "Effectiveness of Electoral Systems for Reducing Government Corruption: A Game-Theoretic Analysis," Games and Economic Behavior, Elsevier, vol. 5(1), pages 118-132, January.
    32. Henry Tulkens, 2006. "On FDH Efficiency Analysis: Some Methodological Issues and Applications to Retail Banking, Courts and Urban Transit," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 311-342, Springer.
    33. Michela Redoano, 2010. "Does Centralization Affect the Number and Size of Lobbies?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 407-435, June.
    34. Glenn Rayp & Nicolas Van De Sijpe, 2007. "Measuring and explaining government efficiency in developing countries," Journal of Development Studies, Taylor & Francis Journals, vol. 43(2), pages 360-381.
    35. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    36. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, vol. 83(3), pages 325-345, March.
    37. Schofield, N., 1992. "Political Competition in Multiparty Coalition Governments," Papers 164, Washington St. Louis - School of Business and Political Economy.
    38. Herrera, Santiago & Pang, Gaobo, 2005. "Efficiency of public spending in developing countries : an efficiency frontier approach," Policy Research Working Paper Series 3645, The World Bank.
    39. Mueller,Dennis C. (ed.), 1997. "Perspectives on Public Choice," Cambridge Books, Cambridge University Press, number 9780521553773, October.
    40. Davoodi, Hamid & Zou, Heng-fu, 1998. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," Journal of Urban Economics, Elsevier, vol. 43(2), pages 244-257, March.
    41. Bretschger, Lucas & Hettich, Frank, 2002. "Globalisation, capital mobility and tax competition: theory and evidence for OECD countries," European Journal of Political Economy, Elsevier, vol. 18(4), pages 695-716, November.
    42. Konstantinos Angelopoulos & Apostolis Philippopoulos & Efthymios Tsionas, 2008. "Does public sector efficiency matter? Revisiting the relation between fiscal size and economic growth in a world sample," Public Choice, Springer, vol. 137(1), pages 245-278, October.
    43. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
    44. Balaguer-Coll, Maria Teresa & Prior, Diego & Tortosa-Ausina, Emili, 2007. "On the determinants of local government performance: A two-stage nonparametric approach," European Economic Review, Elsevier, vol. 51(2), pages 425-451, February.
    45. Dilip Mookherjee & Pranab K. Bardhan, 2000. "Capture and Governance at Local and National Levels," American Economic Review, American Economic Association, vol. 90(2), pages 135-139, May.
    46. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    47. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/generalized method of moments estimation and testing," Stata Journal, StataCorp LP, vol. 7(4), pages 465-506, December.
    48. World Bank, 2004. "World Development Indicators 2004," World Bank Publications - Books, The World Bank Group, number 13890.
    49. Paolo Liberati & Antonio Sciala, 2011. "How economic integration affects the vertical structure of the public sector," Economics of Governance, Springer, vol. 12(4), pages 385-402, December.
    50. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
    51. Khaleghian, Peyvand, 2003. "Decentralization and public services : the case of immunization," Policy Research Working Paper Series 2989, The World Bank.
    52. Salmon, Pierre, 1987. "Decentralisation as an Incentive Scheme," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 3(2), pages 24-43, Summer.
    53. Antonio Afonso & Ludger Schuknecht & Vito Tanzi, 2010. "Public sector efficiency: evidence for new EU member states and emerging markets," Applied Economics, Taylor & Francis Journals, vol. 42(17), pages 2147-2164.
    54. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
    55. Tanzi,Vito & Schuknecht,Ludger, 2000. "Public Spending in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521662918, October.
    56. António Afonso & Miguel St. Aubyn, 2004. "Non-parametric Approaches to Education and Health Expenditure Efficiency in OECD Countries," Working Papers Department of Economics 2004/01, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    57. Robalino, David A. & Picazo, Oscar F. & Voetberg, Albertus, 2001. "Does fiscal decentralization improve health outcomes? - evidence from a cross-country analysis," Policy Research Working Paper Series 2565, The World Bank.
    58. Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
    59. Shang-Jin Wei, 2000. "Local Corruption and Global Capital Flows," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 303-354.
    60. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    61. Alberto F. Ades & Edward L. Glaeser, 1999. "Evidence on Growth, Increasing Returns, and the Extent of the Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 1025-1045.
    62. BELLEFLAMME, Paul & HINDRIKS, Jean, 2005. "Yardstick competition and political problems," LIDAM Reprints CORE 1751, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    63. Ramón E. López & Vinod Thomas & Yan Wang, 2008. "The Quality of Growth," World Bank Publications - Books, The World Bank Group, number 28198.
    64. Christian Leßmann, 2006. "Fiscal Decentralization and Regional Disparity: A Panel Data Approach for OECD Countries," ifo Working Paper Series 25, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    65. Martin Bodenstein & Heinrich Ursprung, 2005. "Political yardstick competition, economic integration, and constitutional choice in a federation:," Public Choice, Springer, vol. 124(3), pages 329-352, September.
    66. Ebel, Robert D. & Yilmaz, Serdar, 2002. "On the measurement and impact of fiscal decentralization," Policy Research Working Paper Series 2809, The World Bank.
    67. Gupta, Sanjeev & Verhoeven, Marijn, 2001. "The efficiency of government expenditure: experiences from Africa," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 433-467, May.
    68. McDonald, John, 2009. "Using least squares and tobit in second stage DEA efficiency analyses," European Journal of Operational Research, Elsevier, vol. 197(2), pages 792-798, September.
    69. Jorge Martinez-Vazquez & James Alm (ed.), 2003. "Public Finance in Developing and Transitional Countries," Books, Edward Elgar Publishing, number 2595.
    70. Dan Stegarescu, 2009. "The effects of economic and political integration on fiscal decentralization: evidence from OECD countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(2), pages 694-718, May.
    71. Dan Stegarescu, 2009. "The effects of economic and political integration on fiscal decentralization: evidence from OECD countries," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 694-718, May.
    72. António Afonso & Ludger Schuknecht & Vito Tanzi, 2005. "Public sector efficiency: An international comparison," Public Choice, Springer, vol. 123(3), pages 321-347, June.
    73. Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October.
    74. Peltzman, Sam, 1973. "The Effect of Government Subsidies-in-Kind on Private Expenditures: The Case of Higher Education," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 1-27, Jan.-Feb..
    75. J. Vernon Henderson & Ari Kuncoro, 2004. "Corruption in Indonesia," NBER Working Papers 10674, National Bureau of Economic Research, Inc.
    76. Jochen Mierau & Richard Jong-A-Pin & Jakob de Haan, 2007. "Do political variables affect fiscal policy adjustment decisions? New empirical evidence," Public Choice, Springer, vol. 133(3), pages 297-319, December.
    77. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, vol. 69(3), pages 305-321, September.
    78. Massimo Bordignon & Luca Colombo & Umberto Galmarini, 2003. "Fiscal Federalism and Endogenous Lobbies' Formation," CESifo Working Paper Series 1017, CESifo.
    79. Wallace E. Oates, 1991. "Studies In Fiscal Federalism," Books, Edward Elgar Publishing, number 342.
    80. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    81. Fearon, James D, 2003. "Ethnic and Cultural Diversity by Country," Journal of Economic Growth, Springer, vol. 8(2), pages 195-222, June.
    82. Seabright, Paul, 1996. "Accountability and decentralisation in government: An incomplete contracts model," European Economic Review, Elsevier, vol. 40(1), pages 61-89, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antonis Adam & Manthos Delis & Pantelis Kammas, 2011. "Public sector efficiency: leveling the playing field between OECD countries," Public Choice, Springer, vol. 146(1), pages 163-183, January.
    2. Christl, Michael & Köppl-Turyna, Monika & Kucsera, Dénes, 2018. "Public sector efficiency in Europe: Long-run trends, recent developments and determinants," Working Papers 14, Agenda Austria.
    3. Hindriks, Jean & Lockwood, Ben, 2009. "Decentralization and electoral accountability: Incentives, separation and voter welfare," European Journal of Political Economy, Elsevier, vol. 25(3), pages 385-397, September.
    4. Jorge Martinez-Vazquez & Santiago Lago-Peñas & Agnese Sacchi, 2017. "The Impact Of Fiscal Decentralization: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 1095-1129, September.
    5. Andreas Kyriacou & Oriol Roca sagalés, 2009. "Fiscal descentralization and the quality of government: evidence from panel data," Hacienda Pública Española / Review of Public Economics, IEF, vol. 189(2), pages 131-155, June.
    6. Robert P. Inman, 2008. "Federalism's Values and the Value of Federalism," NBER Working Papers 13735, National Bureau of Economic Research, Inc.
    7. Moussé Sow & Mr. Ivohasina F Razafimahefa, 2015. "Fiscal Decentralization and the Efficiency of Public Service Delivery," IMF Working Papers 2015/059, International Monetary Fund.
    8. Adam, Antonis & Delis, Manthos D. & Kammas, Pantelis, 2011. "Are democratic governments more efficient?," European Journal of Political Economy, Elsevier, vol. 27(1), pages 75-86, March.
    9. Keith Blackburn & Gareth Downing, 2015. "Deconcentration, Corruption and Economic Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 209, Economics, The University of Manchester.
    10. Oto-Peralías, Daniel & Romero-Ávila, Diego & Usabiaga, Carlos, 2013. "Does fiscal decentralization mitigate the adverse effects of corruption on public deficits?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 205-231.
    11. Anisah ALFADA, 2019. "Fiscal Decentralization and Government Expenditure Efficiency in Indonesia: A Malmquist Productivity Index," Expert Journal of Economics, Sprint Investify, vol. 7(1), pages 45-57.
    12. Fan, C. Simon & Lin, Chen & Treisman, Daniel, 2009. "Political decentralization and corruption: Evidence from around the world," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 14-34, February.
    13. Francesco Porcelli, 2009. "Effects of fiscal decentralisation and electoral accountability efficiency evidence from the Italian health care sector," Working Papers 2009/29, Institut d'Economia de Barcelona (IEB).
    14. Antonis Adam & Sofia Tsarsitalidou, 2019. "Environmental policy efficiency: measurement and determinants," Economics of Governance, Springer, vol. 20(1), pages 1-22, March.
    15. Barankay, Iwan & Lockwood, Ben, 2007. "Decentralization and the productive efficiency of government: Evidence from Swiss cantons," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1197-1218, June.
    16. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2007. "Decentralization and political institutions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2261-2290, December.
    17. Jose M Alonso & Rhys Andrews, 2019. "Fiscal decentralisation and local government efficiency: Does relative deprivation matter?," Environment and Planning C, , vol. 37(2), pages 360-381, March.
    18. Konstantinos Angelopoulos & Apostolis Philippopoulos, 2005. "The Role of Government in Anti-Social Redistributive Activities," CESifo Working Paper Series 1427, CESifo.
    19. Nadia Fiorino & Emma Galli & Fabio Padovano, 2013. "Do fiscal decentralization and government fragmentation affect corruption in different ways? Evidence from a panel data analysis," Chapters, in: Santiago Lago-Peñas & Jorge Martinez-Vazquez (ed.), The Challenge of Local Government Size, chapter 5, pages 121-147, Edward Elgar Publishing.
    20. Andreas P. Kyriacou & Leonel Muinelo-Gallo & Oriol Roca-Sagalés, 2015. "Regional inequalities, fiscal decentralization and government quality: empirical evidence from simultaneous equations," Working Papers. Collection A: Public economics, governance and decentralization 1501, Universidade de Vigo, GEN - Governance and Economics research Network.

    More about this item

    Keywords

    public sector efficiency; fiscal decentralization; semi-parametric models;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2364. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.