Public Sector Efficiency and the Functions of the Government

Antonio Afonso, José Alves and Najat Bazah

No 2024/0357, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We examine the relationship between public sector efficiency and government spending, to assess public resource management across the 27 European Union countries. Specifically, we analyze the growth of public expenditure in relation to outcomes across various public sector performance (PSP) indicators. We compute government spending efficiency using Data Envelopment Analysis (DEA) to subsequently assess the relationship between efficiency and the growth rate of public expenditure. Our findings suggest that higher efficiency can be achieved without proportionally increasing public spending, both in total expenditure and in specific areas such as social protection, economic affairs, education, healthcare, and public services. Indeed, with overall output efficiency scores between 0.77 and 0.87, with the same level of inputs, output could increase around 13%-23%. Additionally, public spending tends to rise during recessions, while it decreases with higher levels of human capital and redistribution indicators. Finally, more efficient countries tend to coalesce around Austria, Croatia, Denmark, France, Greece, Hungary, Poland, and Sweden.

Keywords: Public Sector Performance Indicators; Efficiency; Public expenditure; Functions of the Government; Data Envelopment Analysis (search for similar items in EconPapers)
JEL-codes: C33 C61 E62 H11 H50 O47 P43 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-eec, nep-eff and nep-tra
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Working Paper: Public Sector Efficiency and the Functions of the Government (2024)
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