Which country uses public social expenditure efficiently among OECD countries?

ABSTRACT

In this study, we estimate the efficiency of public social expenditure and examine what exogenous factors affect the efficiency for OECD countries. In doing so, we use the Stochastic Frontier Model. Our findings suggest the following. First, public social expenditure related to unemployment and family as well as tax burden ratio significantly reduce income inequality. Second, corruption affects the efficiency of public social expenditure. This implies that even though two countries incur the same public social expenditure, a country with a low corruption index has higher efficiency of public social expenditure than that with a high corruption index.

KEYWORDS:

• Stochastic frontier model
• efficiency
• public social expenditure

JEL CLASSIFICATION:

• H53
• I38

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ For example, see Chobanov and Mladenova (2009), Ekinci (2011) and Forte and Magazzino (2010).

² For more details, see Garrett and Mitchell (2001).

³ The most widely used country-specific factor is regulation at the existing studies to estimate efficiency by using Stochastic Frontier Model. For example, Good, Röller, and Sickles (1995) estimated the effect of regulation on the efficiency of the aviation industry.

⁴ While the average ratio of public social expenditure to GDP in Nordic countries (Sweden, Norway, Denmark and Finland) was 28.2% in 2013, that in southern countries such as Greece, Portugal, Spain and Italy was 26.4%.