Public sector efficiency: evidence for new EU member states and emerging markets

Abstract

In this article, we analyse public sector efficiency in the new member states of the EU compared to that in emerging markets. After a conceptual discussion of expenditure efficiency measurement, we compute efficiency scores and rankings by applying a range of measurement techniques. The study finds that expenditure efficiency across new EU member states is rather diverse especially as compared to the group of top performing emerging markets in Asia. Econometric analysis shows that higher income, civil service competence and education levels as well as the security of property rights seem to facilitate the prevention of inefficiencies in the public sector.

Acknowledgements

We are grateful to participants in conferences at ZEW in Manheim, EPCS in Turku, IAES in Berlin and two anonymous referees for helpful comments. We are also grateful to Gerhard Schwab for assistance with the data, and Elizabeth Morton for editorial assistance. Any remaining errors are the responsibility of the authors. The opinions expressed herein are those of the authors and do not necessarily reflect those of the author's employers.

Notes

¹ The conceptual separation between ‘opportunity’ and standard ‘Musgravian’ indicators is of course somewhat artificial as, for example, health and education indicators could also be seen as indicators of allocative efficiency.

² For a differing view on the limits of the stabilising effect of growing government, see Cuaresma et al. (2003) and Buti and van den Noord (2003).

³ See Afonso et al. (2005) for a discussion of the several caveats of such approach.

⁴ Coelli et al. (2002) and Thanassoulis (2001) offer introductions to DEA, while Simar and Wilson (2003) and Murillo-Zamorano (2004) are good references for an overview of frontier techniques.

⁵ We present here the equivalent envelopment form, derived by Charnes et al. (1978), using the duality property of the multiplier form of the original programming model.

⁶ See Ruggiero (2004) and Simar and Wilson (2003) for an overview.

⁷ The choice of indicators is slightly different from that used in Afonso et al. (2005). In addtion to omitting public infrastructure, education is reflected only by a qualitative measure of education achievement (leaving out secondary school enrolment) and economic performance excludes the level of per capita GDP (which in this sample would strongly bias in favour of the rich countries).

⁸ The relevant time period for the several sub-indicators varies a little according to the availability of data but is essentially reported to 2001/2003 with some variables being used as an average of longer time spans (see the Appendix for the precise periods).

⁹ Similar overall results are obtained with Singapore, as shown in Afonso et al. (2006).

¹⁰ Such calculations are an approximation of potential direct costs of inefficiency. However, indirect costs, implying a higher loss for consumer welfare should also be taken into account. This is outside the scope of our article, but Afonso and Gaspar (2007) address this issue.

¹¹ We did a similar correction exercise for model 2, where secondary school enrolment is statistically significant, but since the results were not very diferent, this is not reported, being worthwhile noticing that such factor has a positive contribution to the efficiency score of most new EU member states.