Local service delivery choices in Portugal: A political transaction costs framework

Abstract

In recent years, Portugal has witnessed a large increase in municipal corporations to deliver public services. This article addresses the important question of why Portuguese municipalities choose municipal corporations to deliver certain services, while other services remain provided by in-house bureaucracies. We argue that political transaction costs in local service delivery, linked both to the characteristics of goods and services and to the political and financial features of the municipality, prevent or facilitate delivery by municipal corporations. Using data from 278 Portuguese local governments, multivariate probit models are employed to test hypotheses derived from this political transaction costs framework. Results support the idea that services involving the collection of user fees are more likely to be transferred to municipal corporations. The political and socio-economic context has to be considered in this decision-making process. Local officials ignoring this information are likely to create service delivery mechanisms that are economically inefficient and/or politically unresponsive.

Acknowledgements

The authors would like to express their sincere appreciation to Germà Bel, Trevor Brown, Xavier Fageda, Amir Hefetz, Matthew Potoski, Mildred Warner, and two anonymous reviewers for their helpful comments and insights on a previous version of this work. The Portugese Science and Technology Foundation provided financial support for this research.

Notes

1 Judicial branch organisation that inspects and evaluates the legality and conformity of public budgeting and spending practices producing decisions valid for all public organisations.

2 Both are central government organisations in charge of auditing the legality of public budgeting and contracting practices.

3 For a detailed description of the Portuguese local government system, see Silva (2004).

4 In Portugal, water supply, wastewater management, and solid waste collection are often provided by the same organisation, which may explain transferring services such as water and wastewater management to municipal corporations. Water and wastewater services are relatively highly asset specific and, although they are easily measured in terms of quantity, it is difficult to gauge quality of infrastructure due to underground lines.

5 The economic development category includes promotion of local tourism, ethnographic and local traditions, support of local employment initiatives and professional training courses, rural development, and forest management.

6 The executive board of municipal corporations is usually composed of political appointees nominated by local officials based on close friendship ties.

7 The four major parties in the Portuguese local political system are the Portuguese Communist Party (PCP), on the left, the Socialist Party, on the centre-left, the Social Democratic Party (PSD), on the centre-right, and the Christian-Democratic Party/Popular Party (CDS/PP), on the right. Parties close to the centre of the political spectrum have alternated in the national government for the last 18 years and control about 82.7 per cent of all municipal governments.