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Efficiency of Local Government Spending: Evidence for the Lisbon Region

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  • António Afonso
  • Sónia Fernandes

Abstract

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.

Suggested Citation

  • António Afonso & Sónia Fernandes, 2003. "Efficiency of Local Government Spending: Evidence for the Lisbon Region," Working Papers Department of Economics 2003/09, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp92003
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    Cited by:

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    2. Sridhar, Kala Seetharam, 2011. "The Efficiency of States and Cities: Is There a Case for Public Land Leasing and Sales to Finance India's Cities?," WIDER Working Paper Series 054, World Institute for Development Economic Research (UNU-WIDER).
    3. Canavire Bacarreza, Gustavo J. & Puerta-Cuartas, Alejandro & Beverinotti, Javier, 2024. "Efficiency in Poverty Reduction: A State-Level Analysis for Bolivia," IZA Discussion Papers 16794, Institute of Labor Economics (IZA).
    4. Kala Seetharam Sridhar, 2011. "The Efficiency of States and Cities: Is There a Case for Public Land Leasing and Sales to Finance India's Cities?," WIDER Working Paper Series wp-2011-054, World Institute for Development Economic Research (UNU-WIDER).
    5. Bernardo Alves Furtado, 2014. "Fiscal Income Inequalities Andefficiency: Evidence From Brazilian Municipalities," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 172, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Francesco Aiello & Graziella Bonanno & Luigi Capristo, 2017. "Explaining Differences In Efficiency: The Case Of Local Government Literature," Working Papers 201704, Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF.
    7. Heikki Loikkanen & Ilkka Susiluoton, 2000. "Cost Efficiency of Finnish Municipalities in Basic Service Provision 1994-2002," Regional and Urban Modeling 283600056, EcoMod.
    8. 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.
    9. Francesco Aiello & Graziella Bonanno, 2019. "Explaining Differences In Efficiency: A Meta‐Study On Local Government Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 33(3), pages 999-1027, July.
    10. Bernardo Furtado, 2012. "Fiscal income inequalities in Brazilian municipalities and its consequences: identification and efficiency," ERSA conference papers ersa12p686, European Regional Science Association.
    11. Jugal Mahabir, 2014. "Quantifying Inefficient Expenditure in Local Government: A Free Disposable Hull Analysis of a Sample of South African Municipalities," South African Journal of Economics, Economic Society of South Africa, vol. 82(4), pages 493-517, December.
    12. Àlexandr Knobel & Ilya Sokolov & Elizaveta Khudko, 2011. "The Impact of State Expenditure on the Quality of General Education in Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 152P.
    13. 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.
    14. Isabel Narbón-Perpiñá & Kristof De Witte, 2016. "Local governments’ efficiency: A systematic literature review – Part II," Working Papers 2016/21, Economics Department, Universitat Jaume I, Castellón (Spain).
    15. Antonio Afonso & Carla Scaglioni, 2005. "Public Services Efficiency Provision in Italian Regions: a Non-Parametric Analysis," Working Papers Department of Economics 2005/02, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

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    More about this item

    Keywords

    municipal expenditure; efficiency; production possibility frontier; FDH;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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