The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities

In this paper we use a simple bureaucracy model of fiscal illusion to analyze the impact of intergovernmental grants on the cost efficiency of local jurisdictions. We find that a higher degree of redistribution within a system of fiscal equalization or an increase in the amount of grants received by a local jurisdiction leads to an extension of organizational slack or X-inefficiency in that jurisdiction. This theoretical prediction is tested by conducting an empirical analysis using a broad panel of German municipalities. The results of the empirical analysis are consistent with the theoretical findings and therefore support the existence of a negative incentive effect of intergovernmental grants on local authorities' cost efficiency. --Cost efficiency,Fiscal equalisation,Intergovernmental grants,Bureaucracy,Stochastic frontier analysis,German municipalities

The Impact of Intergovernmental Grants on Cost Efficiency: Theory and Evidence from German Municipalities

In this paper we use a simple bureaucracy model of fiscal illusion to analyse the impact of intergovernmental grants on the cost efficiency of local jurisdictions. We find that a higher degree of redistribution within a system of fiscal equalisation or an increase in the amount of grants received by a local jurisdiction leads to an extension of organisational slack or X-inefficiency in that jurisdiction. This theoretical prediction is tested by conducting an empirical analysis using a broad panel of German municipalities. The results of the empirical analysis are consistent with the theoretical findings and therefore support the existence of a negative incentive effect of intergovernmental grants on local authorities' cost efficiency.Cost efficiency; Fiscal equalisation; Intergovernmental grants; Bureaucracy; Stochastic frontier analysis; German municipalities

What determines local governments' technical efficiency? The case of road maintenance

In this paper we investigate the determinants of local governments' technical efficiency in road maintenance for a panel of German counties using a broad variety of estimation approaches. More specifically, we calculate efficiency indices using non-parametric (DEA) and parametric (stochastic frontier analysis) reference technologies, and examine how these efficiency indices can be explained by estimating and comparing four different regression models. The results of our analysis show that (controlling for numerous characteristics of the counties) the disposable income of the counties' citizens, intergovernmental grants (for county roads), and the payments to the counties influence efficiency negatively. Concerning political variables we find weak evidence that efficiency decreases with an increasing share of seats of left-wing parties in the county council; the hypothesis that efficiency decreases with the degree of political concentration in the county council could not be confirmed. --Technical efficiency,road maintenance,stochastic frontier analysis,data envelopment analysis,German counties

What determines local governments' technical efficiency? : The case of road maintenance

In this paper we investigate the determinants of local governments' technical efficiency in road maintenance for a panel of German counties using a broad variety of estimation approaches. More specifically, we calculate efficiency indices using non-parametric (DEA) and parametric (stochastic frontier analysis) reference technologies, and examine how these efficiency indices can be explained by estimating and comparing four different regression models. The results of our analysis show that (controlling for numerous characteristics of the counties) the disposable income of the counties' citizens, intergovernmental grants (for county roads), and the payments to the counties influence efficiency negatively. Concerning political variables we find weak evidence that efficiency decreases with an increasing share of seats of left-wing parties in the county council; the hypothesis that efficiency decreases with the degree of political concentration in the county council could not be confirmed

Local governments in the wake of demographic change: evidence from German municipalities

German municipalities are expected to suffer from intense demographic changes in the upcoming decades; not only in the form of population losses, but also through a changing demographic structure (i.e. less children and adolescents, more elderly, higher dependency ratio, and so on). We assess local governments’ vulnerability to the fiscal consequences of these demographic transformations (using a sample of 1021 municipalities in the state of Baden-Württemberg) by determining the elasticity of local government cost functions to municipalities’ demographic characteristics. Our findings indicate that smaller municipalities are especially vulnerable to increasing cost pressures following most of the currently predicted demographic changes. In the absence of increased higher-level government support (e.g. through the fiscal equalization scheme), these findings would support a case for boundary reviews or more extensive inter-communal cooperation. -- Deutsche Stadtverwaltungen werden erwartungsgemäß in den kommenden Jahrzehnten unter einem demographischen Wandel zu leiden haben, welcher nicht nur in Form eines allgemeinen Bevölkerungsrückgangs, sondern auch durch einen Wandel in der demographischen Struktur (d.h. veränderte Altersstruktur durch weniger Junge und mehr Alte, höhere Abhängigkeitsrate usw.) zum Ausdruck kommt. Wir untersuchen die diesbezügliche Anfälligkeit von dezentralen Regierungen (zugrunde liegt eine Stichprobe von 1021 Stadt- und Gemeindeverwaltungen im Land Baden-Württemberg), indem wir die Elastizität der Kostenfunktionen bezüglich der demographischen Charakteristika der jeweiligen Stadt- und Gemeindeverwaltungen bestimmen. Unsere Ergebnisse deuten darauf hin, dass gerade kleinere Gemeinden unter dem steigenden Kostendruck leiden, der mit den meisten vorhergesagten demographischen Veränderungen einhergeht. Wenn keine übergeordnete Regierungsebene diese kleineren Verwaltungsgebiete unterstützt (z.B. durch ein Finanzausgleichsystem), dann unterstützen unsere Ergebnisse eine kritische Überprüfung von fiskalischen Grenzen bzw. der Ausweitung der inter-kommunalen Kooperation.Demographic change,local government expenditures,cost elasticity,economies of scale,rolling regression,German municipalities

Voter involvement, fiscal autonomy and public sector efficiency: evidence from German municipalities

Social and/or political involvement within the population is often argued to enhance public sector performance. The underlying idea is that engagement fosters political awareness and interest and increases the public’s monitoring ability. Still, weak fiscal autonomy can undermine voters’ interest in and demand for an efficient production of public services. In our contribution, we test whether and how voter involvement in the political sphere is related to government performance – in terms of its efficiency – using a broad panel of German municipalities. Our results suggest that voter involvement indeed has a positive impact on cost efficiency. Crucially, however, this efficiency-enhancing effect of voter involvement is significantly positively affected by local governments’ fiscal autonomy. -- Häufig wird argumentiert, dass eine soziale und politische Beteiligung der Bevölkerung die Effizienz des öffentlichen Sektors fördert. Die grundlegende Idee ist, dass dieses Engagement politisches Bewusstsein und Interesse fördert und somit die Möglichkeiten der Öffentlichkeit zur Kontrolle erhöht. Allerdings untergräbt eine schwache Finanzhoheit das Interesse der Wähler und ihre Nachfrage nach einer effizienten Produktion öffentlicher Leistungen. In unserem Beitrag testen wir anhand eines breiten Panels deutscher Kommunen, ob und wie die Beteiligung von Wählern in der politischen Sphäre im Zusammenhang zum Leistungsverhalten einer Regierung – im Hinblick auf Effizienz – steht. Unsere Ergebnisse deuten darauf, dass sich die Beteiligung der Wähler tatsächlich positiv auf die Kosteneffizienz auswirkt. Entscheidend ist jedoch, dass dieser Effizienzfördernde Effekt der Wählerbeteiligung signifikant positiv von der Finanzautonomie der kommunalen Regierungen beeinflusst wird.Civic engagement,fiscal autonomy,local government,efficiency,stochastic,frontier analysis,German municipalities

Local Governments in the Wake of Demographic Change: Efficiency and Economies of Scale in German Municipalities

German municipalities are expected to suffer from (often significant) population losses in the upcoming decades. We assess these local governments? vulnerability to the fiscal consequences of this demographic decline through two means (using a sample of 1021 municipalities in the state of Baden-Württemberg). First, we consider local government cost efficiency. This indicates that there is a substantial divergence in efficiency despite a homogeneous institutional setting, leaving at least some – mainly smaller – municipalities vulnerable to adverse demographic/financial shocks. Secondly, we estimate the elasticity of local government cost functions to population size. We find that costs rise (fall) underproportionally with population size for small municipalities, whereas this is less the case for larger municipalities. This implies that especially small municipalities are vulnerable to increasing cost pressures under declining population. The overall implication is that large German municipalities (over 10.000 inhabitants) will more easily be able to cope with the expected population decline than smaller ones, supporting a case for boundary reviews or more extensive inter-communal cooperation. --Demographic change,Efficiency,Local government performance,Stochastic frontier analysis,Economies of scale,Cost elasticity

Acetylcholinesterase inhibitors reduce neuroinflammation and -degeneration in the cortex and hippocampus of a surgery stress rat model

Im Rahmen eines chirurgischen Eingriffs führt exogener Stress durch Gewebeschaden sowie das Eindringen pathogener Keime zu einer peripheren inflammatorischen Reaktion und kann eine Neuroinflammation induzieren, welche wiederum in einer postoperativen kognitiven Dysfunktion (POCD) münden kann. Der cholinerge anti-inflammatorische Reflex ist ein neurohumoraler Mechanismus und spielt eine bedeutende Rolle bei der Supprimierung der inflammatorischen Reaktion. Die Behandlung mit Acetylcholinesterase-Inhibitoren steigert die cholinerge Wirkung und gilt somit als potentieller Ansatz, um eine Neuroinflammation zu verhindern. Adulte Wistar-Ratten wurden entweder lediglich laparotomiert oder operiert und zusätzlich mit Lipopolysaccharid (LPS) behandelt, wobei einem Teil der Tiere zudem ein Acetylcholinesterase- Inhibitor appliziert wurde. Als Acetylcholinesterase-Inhibitor wurden Physostigmin, welches die Blut-Hirn-Schranke überwindet oder das ausschließlich peripher wirkende Neostigmin eingesetzt. Die Expression pro- und anti-inflammatorischer Zytokine im Kortex, Hippocampus, Milz und Plasma wurde 1 Stunde, 24 Stunden, 3 Tage und 7 Tage nach Behandlung mittels Real- Time PCR, Western Blot Analyse und Cytometric Bead Array (CBA) quantifiziert. Um eine Neurodegeneration zu beschreiben, wurden Hirnschnitte mit Fluoro-Jade B gefärbt. Die Acetylcholinesterase-Aktivität wurde spektrofluorometrisch nachgewiesen. Der operative Eingriff kombiniert mit LPS-Behandlung führte im Kortex sowie im Hippocampus zu einer Hochregulation von IL-1beta auf Gen- und Proteinebene und ließ sich signifikant durch Physostigmin und Neostigmin reduzieren. Darüber hinaus führte die Operation mit LPS-Behandlung zu einer gesteigerten Proteinexpression von IL-1, TNF-alpha und IL-10 in der Milz und im Plasma. Physostigmin und Neostigmin senkten signifikant die gesteigerte Proteinexpression von IL-1 und TNF-alpha. Die neuronale Degeneration und die Acetylcholinesterase-Aktivität waren nach dem operativen Eingriff mit LPS- Behandlung erhöht. Mittels Applikation der Acetylcholinesterase -Inhibitoren lassen sich die pro-inflammatorische Antwort so wie die Neurodegeneration im Kortex und Hippocampus nach Operation kombiniert mit LPS-Behandlung reduzieren. Die Verwendung von Acetylcholinesterase-Inhibitoren könnte somit einen potentiellen Ansatz zur Prävention und Behandlung der POCD darstellen.Exogenous stress like tissue damage and pathogen invasion during surgical trauma could lead to a peripheral inflammatory response and induce neuroinflammation, which can result in postoperative cognitive dysfunction (POCD). The cholinergic anti-inflammatory pathway is a neurohumoral mechanism that plays a prominent role by suppressing the inflammatory response. Treatments with acetylcholinesterase inhibitors enhance cholinergic transmission and may therefore act as a potential approach to prevent neuroinflammation. In the presence or absence of acetylcholinesterase inhibitors, adult Wistar rats underwent surgery alone or were additionally treated with lipopolysaccharide (LPS). Physostigmine, which can overcome the blood-brain barrier or neostigmine acting only peripheral, served as acetylcholinesterase inhibitors. The expression of pro- and anti-inflammatory cytokines in the cortex, hippocampus, spleen and plasma was measured after 1 h, 24 h, 3 d and 7 d using Real-Time PCR, western blot analysis or cytometric bead array (CBA). Fluoro-Jade B staining of brain slices was employed to elucidate neurodegeneration. The activity of acetylcholinesterase was estimated using a spectrofluorometric method. Surgery accompanied by LPS- treatment led to increased IL-1beta gene and protein upregulation in the cortex and hippocampus but was significantly reduced by physostigmine and neostigmine. Furthermore, surgery in combination with LPS-treatment caused increased protein expression of IL-1, TNF-alpha and IL-10 in the spleen and plasma. Physostigmine and neostigmine significantly decreased the protein expression of IL-1 and TNF-alpha. Neuronal degeneration and the activity of acetylcholinesterase were elevated after surgery with LPS-treatment and reduced by physostigmine and neostigmine. Along with LPS-treatment, acetylcholinesterase inhibitors reduce the pro-inflammatory response as well as neurodegeneration after surgery in the cortex and hippocampus. This combination may represent a tool to break the pathogenesis of POCD

Sovereign risk premia: the link between fiscal rules and stability culture

There is a growing empirical literature studying whether fiscal rules reduce borrowing costs. Nevertheless, it remains an open question whether these rules are effective genuinely or just because they mirror fiscal preferences of politicians and voters. In our analysis of European bond spreads, we shed light on this issue by employing several types of stability preference related proxies. These proxies refer to a country’s past stability performance, government characteristics and survey results related to general trust. We find evidence that these preference indicators have an influence on risk premia and dampen the measurable impact of fiscal rules. Yet, the interaction of stability preferences and rules points to a particular potential of fiscal rules in countries with a historically low stability culture

Voter involvement, fiscal autonomy and public sector efficiency : evidence from German municipalities

Social and/or political involvement within the population is often argued to enhance public sector performance. The underlying idea is that engagement fosters political awareness and interest and increases the public’s monitoring ability. Still, although extensive voter involvement may put pressure on policy-makers, it might also send a vague message in that diverging objectives are likely to exist in different groups. Furthermore, weak fiscal autonomy can undermine voters’ interest in and demand for an efficient production of public services. In our contribution, we test whether and how voter involvement in the political sphere is related to government performance – in terms of its efficiency – using a broad panel of German municipalities. Our results suggest that voter involvement indeed has a positive impact on (technical) efficiency. Crucially, however, this efficiency-enhancing effect of voter involvement is significantly (positively) affected by local governments’ fiscal autonomy