Does Public Sector Inefficiency Constrain Firm Productivity: Evidence from Italian Provinces

27 Pages Posted: 31 Aug 2015

See all articles by Raffaela Giordano

Raffaela Giordano

World Bank

Sergi Lanau

International Monetary Fund (IMF)

Pietro Tommasino

Bank of Italy

Petia B. Topalova

International Monetary Fund (IMF)

Date Written: July 2015

Abstract

This paper studies the effect of public sector efficiency on firm productivity using data from more than 400,000 firms across Italy’s provinces. Exploiting the large heterogeneity in the efficiency of the public sector across Italian provinces and the intrinsic variation in the dependence of industries on the government, we find that public sector inefficiency significantly reduces the labor productivity of private sector firms. The results suggest that raising public sector efficiency could yield large economic benefits: if the efficiency in all provinces reached the frontier, output per employee for the average firm would increase by 9 percent.

Keywords: public sector efficiency, firm productivity, public, public sector, government, General

JEL Classification: H40, H70

Suggested Citation

Giordano, Raffaela and Lanau, Sergi and Tommasino, Pietro and Topalova, Petia B., Does Public Sector Inefficiency Constrain Firm Productivity: Evidence from Italian Provinces (July 2015). IMF Working Paper No. 15/168. Available at SSRN: https://ssrn.com/abstract=2653621

Raffaela Giordano (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Sergi Lanau

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Pietro Tommasino

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Petia B. Topalova

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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