Government Spending and Tax Revenue Decentralization and Public Sector Efficiency: Do Natural Disasters Matter?

43 Pages Posted: 23 May 2023

See all articles by António Afonso

António Afonso

ISEG, Universidade de Lisboa

João Tovar Jalles

University of Lisbon; International Monetary Fund (IMF); Technical University of Lisbon (UTL) - Research Unit on Complexity and Economics (UECE)

Ana Venâncio

ISEG Lisbon School of Economics and Management,Universidade de Lisboa

Date Written: 2023

Abstract

We assess notably how do extreme events affect the public sector efficiency of decentralized governance. Hence, we empirically link the public sector efficiency scores, to tax revenue and spending decentralization. First, we compute government spending efficiency scores via data envelopment analysis. Second, relying on panel data and impulse response approaches, we estimate the effect of decentralization on public sector efficiency and how extreme natural disasters mediate this relationship. The sample covers 36 OECD countries between 2006 and 2019. Our results show that tax revenue decentralization decreases public sector efficiency, while spending decentralization and a regional authority index are positively related to public sector efficiency, both for local projections and panel analysis. For instance, efficiency rises by 10 percent following a spending decentralization shock (reaching over 20 percent after 4 years). Nevertheless, in cases of natural disasters, spending decentralization reduces public sector efficiency. Specifically, in the presence of most extreme natural disasters, the improvement in public sector efficiency after a spending decentralization shock is smaller than in their absence. Moreover, extreme natural disasters also deteriorate the negative effect of tax revenue decentralization on public sector efficiency. These results suggest that sub-national discretionary spending and tax revenue responses might be less fruitful when such extreme events occur.

Keywords: public sector efficiency, data envelopment analysis, local projections, revenue decentralization, spending decentralization, natural disasters, OECD

JEL Classification: C140, C230, E620, H110, H500

Suggested Citation

Afonso, António and Jalles, João Tovar and Venâncio, Ana, Government Spending and Tax Revenue Decentralization and Public Sector Efficiency: Do Natural Disasters Matter? (2023). CESifo Working Paper No. 10424, Available at SSRN: https://ssrn.com/abstract=4456355 or http://dx.doi.org/10.2139/ssrn.4456355

António Afonso (Contact Author)

ISEG, Universidade de Lisboa ( email )

Lisboa
Portugal

João Tovar Jalles

University of Lisbon ( email )

R. Branca Edmée Marques
Dept. Plant Biology
Lisboa, 1600-276
Portugal

International Monetary Fund (IMF) ( email )

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

Technical University of Lisbon (UTL) - Research Unit on Complexity and Economics (UECE)

Rua Miguel Lupi, 20
Lisboa, 1200-781
Portugal

Ana Venâncio

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
27
Abstract Views
116
PlumX Metrics