Behind Public Sector Efficiency: The Role of Culture and Institutions

Abstract

The capability of a country’s public sector to provide high-quality goods and services in a cost-effective way is crucial to foster long-term growth. In this paper we study the determinants of public service efficiency (PSE) and in particular the role of citizens’ political values. Indeed, we argue that citizens’ willingness to invest time and effort monitoring public affairs is necessary, if policy-makers are to be held accountable for what they do and deterred from wasting public resources. Contrary to other papers, our empirical analysis exploits within-country variation, so we don’t need to account for dierences in formal institutions and reduce the risk of omitted variable bias. We first compute PSE measures for several public services (namely education, civil justice, health care, child care and waste disposal) for the 103 Italian provinces; then we show that a higher degree of civicness induces higher levels of PSE. This remains true even after controlling for the possible endogeneity of political culture. Thanks to the characteristics of our data set, we are also able to investigate the link between PSE and decentralized service provision. We nd that decentralization is effciency-enhancing only in areas where PSE is already at satisfactory levels.

Keywords: Public Spending, Efficiency, Political culture, Political institutions

JEL Classification: C14, H50, H77, Z13