Assessing government spending efficiency and explaining inefficiency scores: DEA-bootstrap analysis in the case of Saudi Arabia

Abstract

The recent Saudi Arabia’s “Vision 2030” including the National Transformation Plan has renewed the debate on the efficiency of government spending. The aim of this paper was twofold. First, to measure the relative efficiency of Saudi Arabia’s public spending over the period 1988–2013 using non-parametric approach. Second, to explain the inefficiency scores using a DEA-Bootstrap analysis by incorporating environmental variables. The empirical results show that, on average, the public spending is inefficient, implying that Saudi Arabia can improve their performance on health, education and infrastructure without increasing spending. The empirical explanation of the inefficiency scores using a DEA-Bootstrap analysis shows that the unemployment and broad money negatively impact government expenditure mainly in the case of infrastructure and health. Our findings can be useful for policymakers in order to set out a structural adjustment plan to improve the efficiency level for education, health and infrastructure expenditures.

Keywords:

• government expenditures
• public spending efficiency
• technical efficiency
• DEA-bootstrap

PUBLIC INTEREST STATEMENT

The problem of the efficiency of the Saudi Kingdom’s public spending is in tune with a major reform work. The latter aims to establish a new vision that would change the Outlook of the Saudi economy of an economy essentially based on the income from oil resources to a more diversified economy.

It is in this context that the study of the possible inefficiencies of the Saudi public expenditure structure proves to be an ultimate usefulness to bring the necessary improvements to the revealed dysfunctions. The results of our research shed light on the inefficiencies affecting both infrastructure spending and the health sector. These results are explained by the combination of two factors, namely unemployment and broad money. Our work would be of relevance to policymakers to the extent that these inefficiencies are likely to be corrected by taking a range of measures affecting the structure of expenditure and which will have, as objective, a better allocation of public resources.

Acknowledgements

We greatly appreciate the financial support by Sheikh Mohammed Al-Fouzan Macroeconomic Forecasting Chair (SMF Chair) at Imam University (IMSIU).

Notes

1. Government spending in Saudi Arabia averaged 133,540.57 SAR million from 2008 until 2016, reaching an all-time high of 211,243 SAR million in the first quarter of 2014 and a record low of 76,217 SAR million in the first quarter of 2008. However, Government spending decreased to 129,776 SAR million in the third quarter of 2016 from 150,633 SAR million in the second quarter of 2016.http://www.tradingeconomics.com/saudi-arabia/government-spending.

2. 2017 Budget of Kingdom Saudi Arabia: https://mof.gov.sa/en/budget2017/Documents/The_National_Budget.pdf.

3. For more details on Saudi Arabia’s “Vision 2030” and National Transformation Program 2020, you can refer to the following link: http://vision2030.gov.sa/en.

4. 2017 Budget of Kingdom Saudi Arabia: https://mof.gov.sa/en/budget2017/Documents/The_National_Budget.pdf.

5. For more details on this technique, the reader can be referred to Lynde and Richmond. (1999).

6. According to Yi-Chung Hsu (2013), we use the reciprocal of infant mortality since this is later considered as bad output.

7. Before the estimation of the coefficient scores.

Additional information

Funding

This work was supported by the Shiekh Al-Fouzan Macroeconomic Forecasting Chair (SMFChair) at Imam Mohammad Ibn Saud Islamic University, Riyadh, Saudi Arabia [2015].

Notes on contributors

Mohamed Nejib Ouertani

The principal author (Mohamed Nejib Ouertani) of the paper is an assistant professor at El Imam Mohamed Islamic University, Saudi Arabia. He was previously a holder of the same rank in the specialty of Econometrics and statistics at the university of Economics and management of Sfax in Tunisia. The author has several publications dealing with many topics namely the inefficiency in Islamic banking industry, insurance and non-performing loan in Tunisia.