How Does the Public Spending Affect Technical Efficiency? Some Evidence from 15 European Countries

29 Pages Posted: 5 Dec 2019

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: November 29, 2019

Abstract

The relationship between government size and economic growth has been widely debated. Departing from this issue, we provide an empirical analysis of the impact of government size on technical efficiency. The aim of this paper is to estimate by using a True Random Effect model the impact of public sector’s size and of public expenditure components on 15 European countries’ technical efficiency from 1996 to 2011. Using the total public expenditure as a proxy for the government size we estimate simultaneously national optimal production function and technical efficiency model by controlling for income distribution and institutional quality. Our main findings show that the effect of public sector’s size on efficiency is positive while the type of public expenditures may have both positive and negative impact. In more details, results suggest that social protection, cultural, and health expenditures have a positive effect on technical efficiency, while others have a negative impact. More controversial is the impact of education expenditure, even if a positive effect on efficiency prevails when controlling for heteroscedasticity.

Keywords: Stochastic frontier production function, technical efficiency, government spending, European countries

JEL Classification: C33, H10, H50

Suggested Citation

Auci, Sabrina and Castellucci, Laura and Coromaldi, Manuela, How Does the Public Spending Affect Technical Efficiency? Some Evidence from 15 European Countries (November 29, 2019). CEIS Working Paper No. 476. Available at SSRN: https://ssrn.com/abstract=3495620 or http://dx.doi.org/10.2139/ssrn.3495620

Sabrina Auci (Contact Author)

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

Via Maqueda, 324
Palermo, Palermo 90134
Italy

Laura Castellucci

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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