Abstract
This paper evaluates whether reforms associated with the New Public Management (NPM) doctrine led to a reduction in public sector expenditure and employees. Savings and downsizing the public sector were a major justification when the international movement of public sector reforms began in the 1980s. Since then, NPM has been the subject of extensive academic debate as to its successes and failures. However, empirical assessments of whether NPM reached its stated objectives are relatively scarce, mainly due to the difficulty of quantifying the impact of such reforms. This paper is an attempt to do this, especially looking at outsourcing and decentralization. We test a number of hypotheses related to the outsourcing and decentralization effects on public sector expenditure and employees through an econometric analysis using a panel data model for eighteen European Countries over the period 1980 to 2010. The results suggest a positive correlation between the degree of outsourcing in the provision of public services and government spending in the short term. On the other hand we find that decentralization tends to decrease the size of general government, particularly in the long-run
Highlights
As a result of the ongoing global financial and economic crisis, most European countries are again considering what measures to take to cut public spending in order to reduce the deficit and public debt
In relation to the variable measuring public employment and our variables of interest, we find no clear evidence of cointegration 23, so the results regarding the long-term effect of outsourcing and decentralization on the amount of public employees will be discussed with caution
Though outsourcing and decentralization were introduced as part of a broader New Public Management (NPM) movement from the 1980s, purportedly to reduce the size of the public sector, little work has been done since to quantify to what extent these policies really resulted in a smaller public sector
Summary
As a result of the ongoing global financial and economic crisis, most European countries are again considering what measures to take to cut public spending in order to reduce the deficit and public debt. From the seventies, a radically different consensus on the appropriate role of the State in the economy and the optimum way to manage economic activity took hold. First starting in the UK (Vickers and Yarrow, 1988), and spreading to the rest of Europe over the two decades, a deep reform of the public sector was set in place (Clifton, Comin, and Diaz-Fuentes, 2003, 2006). This included sweeping privatization, liberalization and deregulation programmes
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