Variation in spending efficiency: the effects of exogenous factors on municipal efficiency in a recently decentralized country

ABSTRACT

Research suggests that external factors influence municipal spending efficiency. We tested this assumption using a conditional order-m efficiency model on an eight-year panel of 79 Macedonian municipalities. The findings suggest that factors outside the control of municipal managers affect efficiency differently. Understanding how each factor influences municipal efficiency can help municipal governments improve their overall performance.

KEYWORDS:

• Efficiency
• local government
• fiscal decentralization
• order-m

JEL CLASSIFICATION:

• H21
• H72
• C14
• E62

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Fiscal decentralization theory originates from the theory of rational voters (Tiebout 1956).

² 1 = right-wing, 2 = left-wing or 3 = minority representing.

³ Tax autonomy ratio is a ratio of municipal tax revenues to total municipal revenues reduced by the municipal domestic debt and formula-based transfers from the national government.

⁴ Equations for the (un)conditional are available from the authors.

⁵ The results of the out-of-sample analyses are available upon request.