A comprehensive model for the evaluation of standard expenditure needs and standard level of local services

ABSTRACT

This paper addresses the problem of the simultaneous evaluation of local governments’ standard expenditure needs together with the related level of standard public services proposing a new approach to fiscal equalisation based on quantitative methods. Standard expenditure needs are estimated using quantile regression, moreover robust non-parametric methods are employed for the computation of composite indicators of demand and supply factors. Data from English local authorities over the period 1997–2006 have been used to test the internal and external validity of the model.     

Some economic costs of corruption in LDCs

It has often been argued that bribery creates auction‐like conditions and, hence, improves the allocative efficiency of bureaucratic decisions. This article shows that these auction‐like conditions are not likely to exist because officials will restrict access to bribery in order to reduce the risks of detection. Alternatively, officials may engage in supply‐stretching whose long‐term costs are likely to outweigh any gains in allocative efficiency. It is also shown that bribery may impose other costs resulting from the efforts of officials to create or augment the opportunities for receiving bribes.     

Decentralisation and government provision of public goods: The public health sector in Uganda

While many developing countries have devolved health care responsibilities to local governments in recent years, no study has examined whether decentralisation actually leads to greater health sector allocative efficiency. This paper approaches this question by modeling local government budgeting decisions under decentralisation. The model leads to conclusions not all favourable to decentralisation and produces several testable hypotheses concerning local government spending choices. For a brief empirical test of the model we look at data from Uganda. The data are of a type seldom available to researchers–actual local government budgets for the health sector in a developing country. The health budgets are disaggregated into specific types of activities based on a subjective characterisation of each activity's ‘publicness’. The empirical results provide preliminary evidence that local government health planners are allocating declining proportions of their budgets to public goods activities.     

CONTROLLING LOCAL GOVERNMENT EXPENDITURE: THE CASE OF NORTHERN IRELAND

The purposes of this paper are twofold, namely to outline the basic features of local government finance in Northern Ireland and to discuss how this financial system has been affected by the concerns of central government to control public expenditure. It will be argued that there has been no radical revision of the local government financial system but that central government used traditional methods of moral suasion and capital controls to induce councils to restrict their spending. The reasons for this include the small size of local expenditure and the political risks involved in further curbing local government in Northern Ireland.     

Municipalities’ Contracting Out Decisions: An Empirical Study on Motives

Municipalities have various motives behind their decisions about the modes of their task execution. Empirical studies have not yet provided a fully satisfying explanation for municipalities’ contracting out decisions. Therefore, we interviewed several Dutch principal municipal managers to evaluate the causes and motives for the choices of the current structures for the delivery of their services. This study investigates the relevance of common public choice and transaction cost motives on contracting out and explores the relevance of additional institutional and pragmatic motives. We found that municipalities do not regularly evaluate the service provision of their activities and the potential benefits of outsourcing. In fact, if the activity has an adequate performance level and complaints from municipal employees, local politicians or inhabitants do not occur, a catalyst for a discussion on the contracting out of this activity is, in general, lacking. Principally in the case of structural underperformance municipalities consider a change of service provider, and then the efficiency motive is most relevant. Thereby, institutional motives – such as the stability of service provision – and pragmatic motives are also relevant. Institutional pressures in particular initiate the evaluation of organisational performance, whereas both economic motives as institutional and pragmatic motives are used to compare alternative service providers.     

Intra-provincial fiscal decentralization,relative wealth,and healthcare efficiency: Empirical evidence from China

Decentralizing fiscal power to locally elected governments is often regarded as beneficial for public service efficiency. However, questions remain about whether decentralizing fiscal responsibilities work well in countries lacking political decentralization. In China, fiscal decentralization has significantly strengthened the role of local governments in the provision of healthcare services, but evidence of its efficiency effects is scarce. To cast light on this issue, this study investigates the relationship between intra-provincial fiscal decentralization and the productive efficiency of healthcare services in China. Analysis of panel data for 2006–2017 suggests that expenditure and revenue decentralization from provincial to sub-provincial governments significantly improves healthcare efficiency. Further analysis suggests that the positive impact of healthcare expenditure decentralization on healthcare efficiency may be stronger in wealthier provinces. These findings have important theoretical and practical implications.     

THE NEW SYSTEM OF LOCAL TAXATION IN SCOTLAND: PRINCIPLES AND PRACTICE

This article examines the new system of Scottish local government finance in theory and practice. It argues that reform is based on an economic theory of local fiscal behaviour, and examines the empirical evidence regarding the application of marginal cost pricing principles through the linking of marginal spending to taxation. The research reveals that the application of such principles in practice will be difficult, as only a few services offer direct benefits to all individuals, and as yet the technical precision needed in assessing needs for grant distribution has not materialized. There is little evidence of any impact of financial reform on local expenditure, as a number of intervening variables and assumptions can skew the accountability process.     

Efficiency differentials in peasant agriculture and their implications for development policies

This paper reviews the theoretical and empirical work on allocative efficiency in traditional agriculture and presents a new study of technical efficiency among Tanzanian cotton farmers. The theoretical arguments are shown to apply primarily in a competitive context that differs significantly from that in which peasant farms operate. Re‐analysis of earlier empirical studies shows that, on average, the marginal value products of inputs differ by more than 40 per cent from the marginal factor costs to which they should be equated under allocative efficiency. Our own study among Tanzanian cotton farmers in Geita District reveals that output could be increased by 51 per cent if all farmers achieved those levels of technical efficiency that were in fact achieved by the best farmers in the sample using the same inputs and technologies that the less efficient used. These results indicate that the efficiency hypothesis may not be applicable to much of peasant agriculture and that development policies might fruitfully place more emphasis on raising large numbers of farmers closer to the relatively high efficiency levels achieved by some of their neighbors.     

Remapping the State: Inter-Municipal Cooperation through Corporatisation and Public-Private Governance Structures

The institutional setting of regional and local government in Italy appears to be characterised by an ongoing process of reform and adjustment ever since Regions were created in 1970. More recently, provinces and Municipalities gained wide autonomy in 1990, and the constitution itself was revised in 2001 to set up what is sometimes referred to as a ‘quasi-federal’ system of intergovernmental relations. In this context, inter-municipal cooperation also has witnessed several phases and dynamics, ranging from (very rare) fusions, through single-purpose cooperation, to integrated service management (Public-public partnership, and consortia for the management and/or regulation of public utilities). More recently, and most notably over the past decade, inter-municipal cooperation has taken on a new form, consisting in the shared ownership in joint-stock companies. The so-called ‘corporatisation’ of public bodies, i.e. the creation of public-owned (or mixed public-private), private-law companies and corporations for the fulfilment of public-interest activities, has come to constitute a network of inter-municipal cooperation that appears to represent a shift from an institutional intergovernmental structure of cooperation, to one that is pre-eminently played out in the arenas of public-private forms of governance. The article analyses the literature and overarching trends in inter-municipal cooperation in Italy, and draws on very rich original data on the companies owned by Municipalities in six Italian regions to show how these companies represent the locus of inter-municipal (and multi-level) relations that go well beyond the formal boundaries of local administrations, and are often brokered by powerful private partners.     

Good to share? The pecuniary implications of moving to shared service production for local government services

Shared services are often lauded as an efficacious means of reducing municipal expenditure and thereby improving waning financial sustainability. However, most of the extant theoretical and empirical work only considers costs and benefits at the level of the specific service in question and, hence, fails to capture many of the wider benefits and costs that might accrue to local governments. In this article we first build a schema to illustrate the benefits and costs of moving from separate to collaborative production at the level of individual local authorities. We then test two hypotheses drawn from the schema against a five‐year panel of expenditure data. We find evidence of increased expenditure in the order of 8 per cent that prima facie runs counter to the objectives of many municipal managers engaged with shared services. We conclude by considering the implications of our findings for cooperative ventures between local authorities.     

Local Expenditure Interaction in Italian Municipalities: Do Local Council Partnerships Make a Difference?

This paper investigates interdependence among local councils in Italy in their public spending and distinguishes between possible sources of this interdependence. We find significant positive interaction among neighbouring local councils in regard to both spending at the level of total expenditure and spending on different sub-categories. Attempts to identify the source of this horizontal interaction seem to reject the yardstick competition hypothesis. Addressing the role that local council partnerships may play in internalising fiscal externalities, we suggest that expenditure interaction may be driven by spill-over.     

Local Public-Services Provision under Public–Private Partnerships: Contractual Design and Contracting Parties Incentives

When deciding to resort to a PPP contract for the provision of a local public service, local governments have to consider the demand risk allocation between the contracting parties. In this article, I investigate the effects of demand risk allocation on the accountability of procuring authorities regarding consumers changing demand, as well as on the cost-reducing effort incentives of the private public-service provider. I show that contracts in which the private provider bears demand risk motivate more the public authority from responding to customer needs. This is due to the fact that consumers are empowered when the private provider bears demand risk, that is, they have the possibility to oust the private provider in case of non-satisfaction with the service provision, which provides procuring authorities with more credibility in side-trading and then more incentives to be responsive. As a consequence, I show that there is a lower matching with consumers’ preferences over time when demand risk is on the public authority rather than on the private provider, and this is corroborated in the light of two famous case studies. However, contracts in which the private provider does not bear demand risk motivate more the private provider from investing in cost-reducing efforts. I highlight then a tradeoff in the allocation of demand risk between productive and allocative efficiency. The striking policy implication of this article for local governments would be that the current trend towards a greater resort to contracts where private providers bear little or no demand risk may not be optimal. Local governments should impose demand risk on private providers within PPP contracts when they expect that consumers’ preferences over the service provision will change over time.     

Testing The Limits of Incrementalism: An Empirical Analysis of Expenditure Decisions by English Local Authorities, 1981–1996

Studies of budgetary outputs in public organizations are dominated by the theory of incrementalism. This perspective suggests that expenditure decisions are based on simple rules of thumb. We evaluate the validity of incrementalism by examining the annual spending decisions of 403 English local authorities over 15 budgetary cycles. Two budgetary norms are tested empirically: protect the real level of service provision, and follow central expenditure guidelines. Each of these norms is translated into two decision rules: marginality, or the size of deviations from the norm, and regularity, which refers to the consistency of such deviations over time. Few of the statistical results support the hypothesis that local expenditure decisions are dominated by general budgetary norms or specific decision rules. Our evidence therefore casts doubt on the validity of incrementalism as a theory of local budgetary outputs, and as an explanation of spending decisions in the public sector as a whole.     

Costs and Efficiency of Quasi-Markets in Practice

The purpose of this article is to analyse the costs of introducing quasi-markets to the public sector in practice and to discuss if quasi-markets have been efficient when costs are added. Transaction costs, which will follow instead of hierarchy costs, are difficult to identify and therefore examine. In addition, costs will accrue from changing the mode of governance. The article concludes that creating quasi-markets produces some costs which reduce both technical and allocative efficiency, but what is most problematic is that those costs which are impossible to measure in practice are of greater significance.     

Self-employment earnings and returns to education in rural Peru

This article estimates the returns to education for households who derive part of their income from household based non-farm self-employment ventures in rural Peru. While education is an individual level variable, earnings are observed at the household level. This asymmetry complicates both the estimation and the interpretation of the returns to education. This article is the first jointly to incorporate three channels through which education affects household earnings. Education affects earnings through the marginal productivity of labour (worker effect), labour allocation across activities (between-activity allocative effect) and its production externality effect (spillover effect). The results suggest that the between-activity allocative effects of education dominate the returns. This article also makes novel use of economic geography to proxy for the role that access to markets plays in determining these returns. In particular, altitude is a strong predictor of activity choice and the returns to education in this mountainous country.     

Uninsured Health Shocks and Agricultural Productivity among Rural Households: The Mitigating Role of Micro-credit

This article investigates how health shocks affect farm productivity in the presence of microcredit. It is expected that microcredit increases agricultural productivity by enhancing allocative and technical efficiency and by overcoming financial constraints that reduce purchase of inputs. However, microcredit will have competing uses in the event of uninsured health shocks to the household. Using an endogenous switching regression model and after accounting for self-selection, the results reveal that microcredit has a significant mitigating effect on farm productivity losses. Thus, microcredit generates a double dividend among smallholders serving as insurance against health shocks in rural areas and improving agricultural productivity.     

An (in)effective tax and expenditure limit (TEL): Why county governments do not utilize their maximum allotted property tax rate

Tax and expenditure limits (TELs) are restrictions placed on governments limiting their ability to collect and spend revenue. Residents support these TELs, as they desire lower tax burdens and more government efficiency; yet, residents still desire the same level of public services. Property tax rate limits, a specific type of TEL, are placed upon local governments to limit their ability to collect revenue and expand authority. Rate limits were implemented on the assumption that governments would tax at their highest maximum possible rate, but this is not always the case. This article studies why some local governments choose not to utilize their maximum allotted property tax rate. Using an open systems governance approach, a panel data analysis was conducted using data from 67 Florida counties from 2008 to 2017. Results of the analysis show that the use of special districts and the age of the residential population have significant effects on property tax rate decisions.     

STEERING PUBLIC EXPENDITURE WITH DEFECTIVE MAPS

Governments control public expenditure on definitions different from those of General Government Expenditure, the national accounts aggregate. After a prolonged period of relatively stable definitions for its public expenditure control aggregate, the UK government has recently revised this twice, substituting the New Planning Total for the Old Planning Total in 1990 and then moving in 1993 to the New Control Total. This article evaluates the justifications offered for these revisions and evaluates alternative explanations. The search for presentational gains and recourse to definitional change as an escape from problems feature prominently among the latter. Moreover, the fundamental ongoing changes in the form of public service delivery have major implications for the articulation of delivery agencies with public expenditure planning. There has been a marked loss of information and of transparency, notably with regard to forward information about function and economic category. Data continuity has been broken, and year-on-year changes to cash plans cannot be properly analysed. Transferring expenditure away from general government to where it is‘out of reach’in the expectation of efficiency gains further complicates monitoring. The channels of public accountability are blocked, in part by information overload and in part by information suppression. The existing arrangements, whether by accident or design, confer enormous discretion upon UK government through control of information flows.     

The expansion of the public sector in federalism: a comparative analysis of a macro level governing structure and government size

ABSTRACT

Utilising Oates’ fiscal federalism theorem, the Tiebout model and Berry’s common pool model, this paper examines the effects of four characteristics of a macro level governing structure on public sector employment using a mixed method approach. Regression analysis explores the individual effect of fiscal decentralisation, spatial fragmentation, interjurisdictional competition and jurisdictional overlap on the levels of local public employment; and the qualitative comparative analysis explores the complexities between the four macro characteristics and their combined relations to the levels of state public employment. The results of the statistical analysis suggest that more labour inputs are required to produce public goods and services to meet the needs of local residents. Moreover, the qualitative comparative analysis reveals causality asymmetry between these characteristics and highlights how different interactions of characteristics of a macro level governing structure affect different levels of public sector employment.     

Government,Effectiveness, Performance,and Local Property Values

Abstract

We offer a practical measure of local government effectiveness in the provision of public services relating service expenditures to aggregate property value. Building on the work of Brueckner (1979 Brueckner, J. K. 1979. Property values, local public expenditure, and economic efficiency. Journal of Public Economics, 11: 223–246.  [Google Scholar], 1982 Brueckner, J. K. 1982. A test for allocative efficiency in the local public sector. Journal of Public Economics, 19: 311–331. [Crossref], [Web of Science ®] , [Google Scholar], 1983 Brueckner, J. K. 1983. Property value maximization and public sector efficiency. Journal of Urban Economics., 14: 1–16.  [Google Scholar]) and Henderson (1990, 1995) we present an aggregate property value maximization model where levels of local public services are capitalized into aggregate property values. Using data for Wisconsin municipalities we demonstrate that service expenditure levels, and simultaneously corresponding taxation levels, are suboptimal and should be increased. The aggregate property value maximization test suggests that local public services in Wisconsin are consistently under-provided. By monitoring local property values officials can objectively measure if public services are being provided in an optimal manner.