Sub-national service provision and public spending analysis

Abstract

Local and regional governments represent the nearest form of government to the people and their fundamental role in addressing citizens' needs is acknowledged worldwide. In line with the subsidiarity principle, the responsibility of the public good and service delivery is primarily upon the territorial administrations closer to the citizens, with the main advantage of offering more suitable and better tailored solutions at local level. In a context of scarce resources and tight budget constraints exacerbated by the ongoing economic crisis, the achievement of these goals is limited and needs to be pursued in an efficient and effective way. Accordingly, the development of tools to evaluate the performance of local and regional government is required, as well as measures to monitor the progress of the task achievement and instruments to support over time the decisional process, in the interest of all the involved shareholders, specially policy makers and citizens, international and civil society organizations. This dissertation contributes to the knowledge on basic service delivery and public expenditure analysis at sub-national level. Particularly, it deals with the provision of both general and specific services, namely the education and water sector ones. From a methodological point of view, innovative methods are proposed to evaluate the service supply and public spending in terms of efficiency and effectiveness. To show the potentiality of the suggested tools, empirical applications are proposed covering two EU countries, Belgium and Italy, which are interesting study cases for their common and peculiar features and provide complementary insights. In Chapter 2, we propose the innovative use of a composite indicator to measure the multidimensional aspects of the local public provision, encompassing several commonly acknowledged municipal tasks, and to investigate the relationship with the local government size, as the decentralization of public activities to the municipalities calls for a more enhanced service provision analysis at the local level. We suggest a robust conditional version of a directional distance Benefitof- the-Doubt approach with weight restrictions based on the municipal expenditure composition. Specifically, we deal with the presence of undesirable municipal service indicators and with the heterogeneity among the municipalities in their political preferences, priority public activities and operating environment characteristics. To illustrate the applicability of the suggested method, we show the construction of the municipal service provision composite indicator for 307 Flemish municipalities over the year 2006-2011. As a focus on a particular service, in Chapter 3 the environmental efficiency of 96 Tuscan (Italian) wastewater treatment plants (WWTPs) is investigated taking into account the quality of the outgoing water in terms of pollutant. In this regard, the presence of the residual nitrogen in the outgoing treated water is considered as undesirable output. The efficiency analysis is performed by applying a novel integrated AHP/non-radial directional distance function approach. The obtained results are then used to identify the efficiency explanatory variables: among them, the facilities' capacity, the percentage of wastewater discharged by the industrial and agricultural activities and the level of compliance with the pollutant concentration threshold set by the legislator have a significant impact on the WWTP performance. In Chapter 4, a Data Envelopment Analysis model is used to study the efficiency of Tuscan municipalities' public expenditure. Five strategic functions of Tuscan municipalities are first considered carrying out a non-aggregate analysis; then the overall expenditure composition of each municipality and the global spending efficiency are analysed by a proposed composite indicator. The main determinants affecting the municipalities' efficiency are further investigated. In particular, the obtained results may be consistently included in the long-standing debate on the municipal size, proving that the bigger the municipality, the greater its level of public expenditure efficiency. In Chapter 5, we explore whether investment in public school infrastructure affects students' achievement. We use data on extra funding to public high schools after the 2012 Northern Italy earthquake and apply a quasi-experimental design and an instrumental variable strategy. We find that spending on school infrastructure increases standardized test scores in mathematics and Italian language, and the effect is stronger for lower-achieving students and in mathematics. These results provide evidence in favour of a positive impact of capital spending in improving the learning environment and performances of high school students.