Did New Public Management Matter? An empirical analysis of the outsourcing and decentralization effects on public sector size

Abstract

Did New Public Management (NPM) actually lead to a smaller public sector? NPM has been the subject of extensive academic debate as to its successes and failures. However, empirical assessments of whether NPM reached its stated objectives are relatively scarce, mainly due to the difficulty of quantifying the impact of such reforms. This article attempts to do this, focusing in particular on outsourcing and decentralization. Our findings suggest that government outsourcing did not reduce public sector size, though decentralization policies resulted in a smaller public sector, particularly with regard to government expenditure.

Key words:

• New Public Management
• outsourcing
• decentralization
• public sector size

ACKNOWLEDGEMENT

The research leading to these results has received funding from the European Union’s Seventh Framework Programme under grant agreement No. 266887 (Project COCOPS), Socio-economic Sciences and Humanities. We also thank two anonymous referees and editor for their valuable suggestions.

Notes

1 Eurostat started using the new System of National Accounts from 1995, which facilitated the standardization and comparability of statistical data reliably across countries.

² In an unbalanced panel, the number of time periods t is not the same for all countries i.

³ For a more detailed explanation of these indicators, see Appendix A.

⁴ Unit root tests available on request.

⁵ To assess changes over time, we selected those countries for which we have data for the entire period as well as those for which we do not have complete data but are considered representatives of the major European administrative traditions, such as Germany, France, and the United Kingdom.

⁶ Portugal appears to be a latecomer because the outsourcing ratio started to develop from 1993 onward.