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Local Municipality Productive Efficiency and Its Determinants in South Africa

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  • Nara F. Monkam

    () (Department of Economics, University of Pretoria)

Abstract

The paper assesses the technical efficiency of 231 local municipalities in South Africa for 2007 and investigates the potential determinants of efficiency gaps among local municipalities in the country using the nonparametric Data Envelopment Analysis (DEA) and the parametric Stochastic Frontier Analysis (SFA) techniques. In relation to the DEA technique, efficiency scores are subsequently explained in a second stage regression model with potential explanatory factors using a Tobit regression model. The results show that on average, B1 and B3 municipalities could have theoretically achieved the same level of basic services with about 16% and 80% fewer resources respectively; the difference between the most efficient and the least efficient municipalities being quite substantial. The results also show that B4 municipalities could have theoretically achieved the same level of basic services with about 62% fewer operating expenditures. Furthermore, fiscal autonomy and the number and skill levels of the top management of a municipality’s administration were found to influence the productive efficiency of municipalities in South Africa. The paper findings raise concerns over the future of local municipalities in South Africa, especially B3 and B4 municipalities, about their capability to efficiently deliver on expected outcomes on a sustainable basis.

Suggested Citation

  • Nara F. Monkam, 2011. "Local Municipality Productive Efficiency and Its Determinants in South Africa," Working Papers 201120, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201120
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    References listed on IDEAS

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    1. Harvey S. Rosen, 1997. "The Way We Were (And Are): Changes in Public Finance and Its Textbooks," NBER Working Papers 5972, National Bureau of Economic Research, Inc.
    2. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    3. VANDEN EECKAUT, Philippe & TULKENS, Henry & JAMAR, Marie-Astrid, 1993. "Cost efficiency in Belgian municipalities," CORE Discussion Papers RP 1033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. repec:gig:joupla:v:1:y:2009:i:3:p:3-31 is not listed on IDEAS
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    Cited by:

    1. Enrique J. Buch‐Gómez & Roberto Cabaleiro‐Casal, 2020. "Turnout, political strength, and cost efficiency in Spanish municipalities of the autonomous region of Galicia: Evidence from an alternative stochastic frontier approach," Papers in Regional Science, Wiley Blackwell, vol. 99(3), pages 533-553, June.
    2. 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.
    3. 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.
    4. Isabel Narbón-Perpiñá & Kristof De Witte, 2016. "Local governments’ efficiency: A systematic literature review – Part I," Working Papers 2016/20, Economics Department, Universitat Jaume I, Castellón (Spain).
    5. 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.
    6. Mirjana Sejdini, 2014. "Towards Establishing Financial and Budget Indicators for Municipalities: Theoretical Approach," European Journal of Social Sciences Education and Research Articles, European Center for Science Education and Research, vol. 1, May-Augus.
    7. 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).

    More about this item

    Keywords

    Municipalities; spending efficiency; sub-national government finance; fiscal decentralization; DEA analysis; Tobit; SFA;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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