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How Does the Public Spending Affect Technical Efficiency? Some Evidence from 15 European Countries

Sabrina Auci (), Laura Castellucci () and Manuela Coromaldi ()
Additional contact information
Laura Castellucci: University of Rome "Tor Vergata", http://www.ceistorvergata.it
Manuela Coromaldi: University of Rome “Niccolò Cusano"

No 476, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: The relationship between government size and economic growth has been widely debated. Departing from this issue, we provide an empirical analysis of the impact of government size on technical efficiency. The aim of this paper is to estimate by using a True Random Effect model the impact of public sector’s size and of public expenditure components on 15 European countries’ technical efficiency from 1996 to 2011. Using the total public expenditure as a proxy for the government size we estimate simultaneously national optimal production function and technical efficiency model by controlling for income distribution and institutional quality. Our main findings show that the effect of public sector’s size on efficiency is positive while the type of public expenditures may have both positive and negative impact. In more details, results suggest that social protection, cultural, and health expenditures have a positive effect on technical efficiency, while others have a negative impact. More controversial is the impact of education expenditure, even if a positive effect on efficiency prevails when controlling for heteroscedasticity.

Keywords: Stochastic frontier production function; technical efficiency; government spending; European countries (search for similar items in EconPapers)
JEL-codes: C33 H10 H50 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2019-12-02, Revised 2019-12-02
New Economics Papers: this item is included in nep-eff, nep-eur, nep-gro and nep-pbe
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