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Assessing and Explaining the Relative Efficiency of Local Government: Evidence for Portuguese Municipalities

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  • António Afonso
  • Sónia Fernandes

Abstract

In this paper we measure the relative efficiency of Portuguese local municipalities in a non-parametric framework approach using Data Envelopment Analysis. As an output measure we compute a composite local government output indicator of municipal performance. This allows assessing the extent of municipal spending that seems to be “wasted” relative to the “best-practice” frontier. Our results suggest that most municipalities could achieve, on average, the same level of output using fewer resources, improving performance without necessarily increasing municipal spending. Inefficiency scores are afterwards explained by means of a Tobit analysis with a set of relevant explanatory variables playing the role of non-discretionary inputs..

Suggested Citation

  • António Afonso & Sónia Fernandes, 2005. "Assessing and Explaining the Relative Efficiency of Local Government: Evidence for Portuguese Municipalities," Working Papers Department of Economics 2005/19, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp192005
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    Cited by:

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    2. Yongqiu Wu & Yi Huang & Jing Zhao & Yanping Pu, 2017. "Transfer payment structure and local government fiscal efficiency: evidence from China," China Finance and Economic Review, Springer, vol. 5(1), pages 1-15, December.
    3. Rosa María Armenta Vergara & Carlos Alberto Barreto Nieto & William Orlando Prieto Bustos, 2012. "Medición de la eficiencia en el uso de las regalías petroleras: una aplicación del análisis envolvente de datos," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 4(1), pages 13-32, June.
    4. Jana Soukopova & Eduard Bakoš, 2013. "Environmental protection expenditure: Ex-post evaluation," MUNI ECON Working Papers 08, Masaryk University, revised Apr 2013.
    5. Mirjana Sejdini, 2014. "Towards Establishing Financial and Budget Indicators for Municipalities: Theoretical Approach," European Journal of Social Sciences Education and Research Articles, Revistia Research and Publishing, vol. 1, May - Aug.

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    More about this item

    Keywords

    local government; expenditure efficiency; technical efficiency; DEA; Tobit models.;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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