Does Cutting Back the Public Sector Improve Efficiency? Some Evidence from 15 European Countries

22 Pages Posted: 2 May 2013

See all articles by Sabrina Auci

Sabrina Auci

University of Palermo - Department of European Studies and International Integration.

Laura Castellucci

University of Rome Tor Vergata

Manuela Coromaldi

University of Rome II

Date Written: April 19, 2013

Abstract

The successful development of the welfare state that transpired for three decades after WWII in the developed countries, came to a halt around the end of the 1980s. Since then, the number of articles and books dedicated to the crisis of the welfare state has increased. We can now assert that at the turn of the century, almost all industrialized countries had cut at least “some” entitlements in their welfare program along with other expenditure items, and the trend continued in the first decade of this century. To defend the cuts and possibly to justify continuing cuts, several economic reasons, both theoretical and empirical, have been highlighted. From mention of Baumol’s disease to the fiscal crisis, the support for making such decisions by governments gained momentum, with their political inspiration changing during the same period in favor of more conservative, right-wing positions. The low productivity of the public sector and the high level of tax burden were the substantial arguments used to support cuts. The aim of this paper is to provide an empirical investigation into the impact of retrenchment of the public sector on the performance of 15 European countries. In particular, we aim to empirically test the view that “big government” reduces a country's efficiency. We have found that no such empirical support exists. We have also included analysis of the distribution of income through the Gini index and have found the standard trade-off relation between inequality and efficiency.

Keywords: Stochastic frontier production function, public sector productivity, welfare

JEL Classification: H11, H53, O4, D6

Suggested Citation

Auci, Sabrina and Castellucci, Laura and Coromaldi, Manuela, Does Cutting Back the Public Sector Improve Efficiency? Some Evidence from 15 European Countries (April 19, 2013). CEIS Working Paper No. 274, Available at SSRN: https://ssrn.com/abstract=2254056 or http://dx.doi.org/10.2139/ssrn.2254056

Sabrina Auci

University of Palermo - Department of European Studies and International Integration. ( email )

Via Maqueda, 324
Palermo, Palermo 90134
Italy

Laura Castellucci (Contact Author)

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

Manuela Coromaldi

University of Rome II ( email )

Via di Tor Vergata
Rome, Lazio
Italy

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