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Efficiency of Local Government Spending: Evidence for the Lisbon Region

  • António Afonso
  • Sónia Fernandes

In this paper we measure and analyse expenditure efficiency of Portuguese local governments using a non-parametric technique for production frontier estimation known as Free Disposal Hull. We first construct an index of municipal performance and then compute input and output efficiency scores for 51 Portuguese municipalities located in the region of Lisbon and Vale do Tejo (RLVT) in order to estimate the extent of municipal spending that seems to be 'wasted' relative to the 'best-practice' frontier. The results of our empirical analysis suggest that RLVT municipalities could achieve, on average, roughly the same level of local output with about 39 percent fewer resources, i.e. local performance could be improved without necessarily increasing municipal spending.

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Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2003/09.

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Date of creation: 2003
Date of revision:
Handle: RePEc:ise:isegwp:wp92003
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Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL

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  1. De Borger, Bruno & Kerstens, Kristiaan, 1996. "Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches," Regional Science and Urban Economics, Elsevier, vol. 26(2), pages 145-170, April.
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  3. Agrell, Per J. & Martin West, B., 2001. "A caveat on the measurement of productive efficiency," International Journal of Production Economics, Elsevier, vol. 69(1), pages 1-14, January.
  4. 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 - School of Economics and Management, Department of Economics, University of Lisbon.
  5. Fakin, Barbara & de Crombrugghe, Alain, 1997. "Field adjustments in transition economies : social transfers and the efficiency of public spending - a comparison with OECD countries," Policy Research Working Paper Series 1803, The World Bank.
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  7. Fare,Rolf & Grosskopf,Shawna & Lovell,C. A. Knox, 2008. "Production Frontiers," Cambridge Books, Cambridge University Press, number 9780521072069, November.
  8. Kathy Hayes & Laura Razzolini & Leola Ross, 1998. "Bureaucratic choice and nonoptimal provision of public goods: Theory and evidence," Public Choice, Springer, vol. 94(1), pages 1-20, January.
  9. 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.
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  11. Blair, Harry, 2000. "Participation and Accountability at the Periphery: Democratic Local Governance in Six Countries," World Development, Elsevier, vol. 28(1), pages 21-39, January.
  12. DE BORGER, Bruno & KERSTENS, K. & MOESEN, Wim & VANNESTE, Jacques, 1992. "Explaining differences in productive efficiency: An application to Belgian municipalities," SESO Working Papers 1992003, University of Antwerp, Faculty of Applied Economics.
  13. Tanzi,Vito & Schuknecht,Ludger, 2000. "Public Spending in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521662918, November.
  14. Kalirajan, K P & Shand, R T, 1999. " Frontier Production Functions and Technical Efficiency Measures," Journal of Economic Surveys, Wiley Blackwell, vol. 13(2), pages 149-72, April.
  15. António Afonso & Ludger Schuknecht & Vito Tanzi, 2005. "Public sector efficiency: An international comparison," Public Choice, Springer, vol. 123(3), pages 321-347, June.
  16. Rowland, Allison M., 2001. "Population as a Determinant of Local Outcomes under Decentralization: Illustrations from Small Municipalities in Bolivia and Mexico," World Development, Elsevier, vol. 29(8), pages 1373-1389, August.
  17. Davis, Michael L & Hayes, Kathy, 1993. "The Demand for Good Government," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 148-52, February.
  18. Grossman, Philip J. & Mavros, Panayiotis & Wassmer, Robert W., 1999. "Public Sector Technical Inefficiency in Large U.S. Cities," Journal of Urban Economics, Elsevier, vol. 46(2), pages 278-299, September.
  19. repec:fth:prinin:379 is not listed on IDEAS
  20. Deller, Steven C, 1992. "Production Efficiency in Local Government: A Parametric Approach," Public Finance = Finances publiques, , vol. 47(1), pages 32-44.
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