The Size and Performance of Public Sector Activities in Europe: An Overview

Abstract

Obvious differences between countries regarding their economic performance have led to the question whether the size, structure, and organisation of the public sector contribute to cross-country income levels and growth gaps. Public sector activities may have an effect on overall productivity and economic growth via two channels: Directly, through the level and changes of productivity within the public sector, and indirectly, by triggering off productivity changes in private production. This paper is concerned with the former aspect. It provides an overview of recent empirical literature on public sector performance and relates performance to the size and structure of the public sectors in Europe, the US and Japan. The results are not fully conclusive, but seem to attribute more efficiency to smaller rather than to larger government sectors. Public sector reforms aiming to consolidate the size of government are likely to enhance the sector’s own productivity and are thereby prone to contribute positively to overall economic performance.

Keywords: government size and structure, public sector performance

JEL Classification: H00, H10, O49