Exploring sources of local government technical inefficiency: evidence from Flemish municipalities

The present paper explores sources of technical (in)efficiency of Flemish municipalities in their production of local public goods (in the year 2000). In assessing inefficiency derivation, we focus on socio-economic and political characteristics of the municipalities as potential source. Our main findings indicate that while the socio-economic make-up of the population (i.c. income, income inequality, education and unemployment) appears to bear little relation to local (in)efficiency, the reverse holds for the municipal financial situation (i.c. grants, historical debt and fiscal surplus) as well as population size and density. Also, different types of communities – i.e. agricultural, residential, industrial, touristic or urbanised – are generally found to achieve comparable performance levels in providing ‘core’ public services. While indicative, the limitations of our dataset imply that further work is vital before definitive conclusions (as well as causal inferences) can be made. -- Im vorliegenden Papier untersuchen wir anhand flämischer Gemeindeverwaltungen im Jahr 2002 die Ursachen von technischer Effizienz bzw. Ineffizienz in der Bereitstellung von lokalen öffentlichen Gütern. Als mögliche Quellen von Ineffizienz fokussieren wir in unserer Analyse auf sozioökonomische und politische Charakteristika der jeweiligen Gemeinden. Unsere Ergebnisse zeigen, dass die finanzielle Situation und die Einwohnerzahl und -dichte der Gemeinden (d.h. Subventionen, Altschuldenlasten, Haushaltsüberschüsse etc.) im Zusammenhang mit kommunaler (In)Effizienz stehen, während hingegen die Struktur der Bevölkerung in Hinblick auf sozioökonomische Charakteristika (z.B. Einkommen und deren Verteilung, Bildung und Arbeitslosigkeit) kaum einen Einfluss hat. Ebenso zeigen verschiedene Gemeindetypen (wir unterscheiden hier z.B. nach landwirtschaftlichen Gemeinden, Wohngegenden, Industriegebieten, touristisch erschlossenen und urbanisierten Gemeinden) ein vergleichbares Niveau in der Bereitstellung der wichtigsten öffentlichen Güter. Die Begrenztheit unserer Daten impliziert aber die Notwendigkeit weiterer Analysen bevor eindeutige Kausalitäten und Ergebnisse bestimmt werden können. Die vorliegende Arbeit bietet hierfür ein Beispiel und zeigt, wie eine solche Untersuchung gestaltet werden kann.Technical efficiency,government performance,Socio-economic typology,Flemish municipalities

Institutional Infrastructure and Economic Performance: Levels versus Catching Up and Frontier Shifts

We analyze the relationship between institutional infrastructure (capturing political stability, quality of government and social infrastructure) and overall country productivity for a sample of 57 (OECD and non-OECD) countries. Specifically, we compare empirical results for alternative productivity measures: output per worker and total factor productivity (TFP); in addition, we consider both levels and changes, where we decompose TFP changes into efficiency changes and technical changes. This gives us insight into the different channels through which the institutional infrastructure impacts on overall productivity performance: the 'accumulation' of production factors versus the 'accommodation' of production factors, and the 'shifting' of the world productivity frontier versus the 'catching up' with this frontier. In line with the existing literature, our results suggest a substantial accumulation effect: good institutions enhance capital accumulation. In addition, we find significant evidence in favor of an accommodation effect (in terms of both levels and changes), which elicits institutional quality as a 'lubricant' of the economic system: good institutions facilitate complex transactions, specialization and flexibility while reducing transaction costs. Interestingly, we find that good institutions enhance technical change as well as efficiency change. Conveniently, the decomposition of TFP change also allows us to interpret the convergence issue, for which largely inconclusive evidence is obtained on the basis of a combined TFP measure. Our findings reveal that efficiency change is associated with convergence, i.e., countries with lower initial productivity realize higher productivity growth through catching up. By contrast, technical change corresponds to divergence, i.e., countries with higher initial productivity succeed in higher productivity growth through shifts of the technological frontier. One possible rationalization is that greater experience with technological innovation (i.e., a closer situation to the world technology frontier) benefits the implementation of new products and processes (i.e., the cost of additional innovations falls).institutions; productivity measurement; convergence

The Macroeconomic Performance of Nations: Measurement and Perception

It is common practice to summarise the economic performance of countries in terms of four dimensions (real growth, inflation, unemployment and the external account), which are visually captured by the magic diamond of the OECD. In this paper we present a synthetic performance measure which merges the four separate indicators into one single statistic. The relative importance of each indicator, representing another macroeconomic objective, may vary across countries and over different subperiods. Therefore we want to construct an indicator which allows unequal weighting of its components, using a data envelopment analysis (DEA)-inspired linear programming model which exhibits ‘benefit of the doubt weighting’. These synthetic macroeconomic performance scores reveal interesting information. They confront measurement with perception. In this paper we use our measure to check empirically whether the strict Maastricht convergence criteria actually have led to a relative economic performance deterioration of the EU-candidates compared to the rest of the world. This viewpoint is often articulated in the theoretical literature. In particular, we investigate the performance of twenty OECD countries, half of which belongs to the EU, in the quinquennial period before and after the Maastricht Treaty.

Sizing the Government

Is there such a thing as an optimal government size? We investigate by the non-parametric Data Envelopment Analysis (DEA) the so-called `Armey curve' which claims an inverted U-shaped relationship between government size and economic performance. The DEA scores are linked to control variables as initial per capita income, openness, population density, urbanization, country size and family size. For 23 OECD-countries we estimate the country specific efficiency scores, which reveal the extent to which a country uses excess public resources to achieve the observed growth rate of GDP.Data Envelopment Analysis, Government size, Public sector performance, Armey-curve

Measuring local government technical (in)efficiency: An application and comparison of FDH, DEA and econometric approaches

Economic efficiency – understood in terms of jurisdictions providing a maximum amount of output for a given level of inputs – is one potential means to evaluate public policies. Various approaches, however, co-exist to measure the (technical) efficiency of organizations. Given that these rely on different underlying assumptions, it is important to assess whether, and to what extent, the approach taken affects the outcome of efficiency studies. The present paper employs a dataset of local governments in Flanders in 2000 to compare the three common approaches to measure (in)efficiency (i.c. FDH, DEA and econometric techniques). Our results indicate that the methodological choices of instrumentation have a substantial effect on analytic performance measurement. Hence, assessing the robustness of the results across various approaches to efficiency measurement is crucial to avoid incorrect inferences. -- Ökonomische Effizienz – verstanden im Sinne der Maximierung der Ausbringungsmenge für ein gegebenes Inputlevel – ist ein gängiges Mittel um staatliche Politiken zu evaluieren. Allerdings existieren mehrere Herangehensweisen, um die (technische) Effizienz von Organisationen zu messen. Unter der Voraussetzung, dass diese auf unterschiedlichen Annahmen basieren, ist es von Interesse, ob und inwiefern die gewählte Methode die Ergebnisse einer Untersuchung beeinflusst. Mit dem Datenmaterial aus flämischen Gemeindeverwaltungen im Jahr 2000 vergleichen wir die drei bedeutendsten Methoden der (In-)Effizienzmessung (FDH, DEH und ökonometrische Verfahren). Unsere Ergebnisse zeigen, dass die Wahl der Methode einen substantiellen Einfluss auf die Performancemessung hat. Aus diesem Grunde erscheint es mitunter unerlässlich, die Robustheit von Ergebnissen anhand verschiedener Effizienzmethoden zu überprüfen, um nicht Gefahr zu laufen, unzulässige Folgerungen zu ziehen.free disposal hull,data envelopment analysis,stochastic frontiers,government (in)efficiency,Flemish municipalities

Trust as societal capital: economic growth in European regions

The neo-institutional approach to economic phenomena has forwarded the institutional framework within a society as a fundamental determinant of economic performance. Cultural characteristics, also referred to as "societal capital", have gained specific attention in this respect. Basically, a culture that is characterised by trust is increasingly considered as a competitive advantage. This paper fits in this neo-institutional perspective. We outline an integrated conceptual framework that articulates the direct and indirect channels through which a culture may influence the economic record. Confining to economic growth as an indicator of economic performance and using data from the European Value Study, we subsequently investigate empirically the link between cultural values and economic performance, hereby focusing on a European sample that includes regions as units of observation. This empirical evidence indeed seems to confirm the trust-growth hypothesis. Building on this result, we finally consider a number of possible policy implications. We hereby envisage the government as the main designer of the formal institutional framework within which economic agents interact. In addition, we emphasise the government’s exemplary role as a visible emanation of societal values.

Trust as Societal Capital: Economic Growth in European Regions.

The neo-institutional approach to economic phenomena has forwarded the institutional framework within a society as a fundamental determinant of economic performance. Cultural characteristics, also referred to as "societal capital", have gained specific attention in this respect. Basically, a culture that is characterised by trust is increasingly considered as a competitive advantage. This paper fits in this neo-institutional perspective. We outline an integrated conceptual framework that articulates the direct and indirect channels through which a culture may influence the economic record. Confining to economic growth as an indicator of economic performance and using data from the European Value Study, we subsequently investigate empirically the link between cultural values and economic performance, hereby focusing on a European sample that includes regions as units of observation. This empirical evidence indeed seems to confirm the trust-growth hypothesis. Building on this result, we finally consider a number of possible policy implications. We hereby envisage the government as the main designer of the formal institutional framework within which economic agents interact. In addition, we emphasise the government’s exemplary role as a visible emanation of societal values.

Legitimately Diverse, yet Comparable: On Synthesising Social Inclusion Performance in the EU

The Open Method of Coordination (OMC) intends to enhance EU member states' performance with regard to social inclusion. In this context a set of commonly agreed performance indicators plays an important role. While the communicative power of a synthetic indicator has been recognised, several objections have been raised against such a construction. In this paper, we argue that a set of separate indicators can in principle be combined into one synthetic performance index without giving up on the notion of subsidiarity, and without fundamentally impairing the peer pressure incentives that constitute an important rationale for OMC. We complement the presentation of the conceptual framework with a number of empirical applications, thereby indicating how the basic method may be instrumental for policy benchmarking practice.

Sizing the government

Is there such a thing as an optimal government size? We investigate by the non-parametric Data Envelopment Analysis (DEA) the so-called `Armey curve' which claims an inverted U-shaped relationship between government size and economic performance. The DEA scores are linked to control variables as initial per capita income, openness, population density, urbanization, country size and family size. For 23 OECD-countries we estimate the country specific efficiency scores, which reveal the extent to which a country uses excess public resources to achieve the observed growth rate of GDP

One Market, One Number? A Composite Indicator Assessment of EU Internal Market Dynamics

We consider the lack of consensus about an appropriate theoretical framework linking sub-indicators as a defining characteristic of composite indicators. This intrinsic feature implies uncertainties about the appropriate normalisation and aggregation of the raw data. The two are related: index theory offers some valuable guidelines about their connection. Yet these do not fully solve the basic problem of expert disagreement. We embed such (residual) disagreement in the aggregation method itself. Specifically, we apply an impartial benefit-of-the-doubt weighting procedure, where weight restrictions incorporate the available information on experts’ opinions. We apply this procedure to the dynamic performance assessment of EU Internal Market effects, thereby highlighting its capacity to disaggregate member states’ observed performance shifts into changes relative to benchmarks and performance changes of the benchmarks (i.e. catching up versus genuine progress). Our results indicate that the latter factor is more important in explaining the observed progress.composite indicators, aggregation, weighting, Internal Market