Abstract
We analyse overall cost efficiency in Spanish local governments during the crisis period (2008–2015). To this end, we first consider some of the most popular nonparametric methods to evaluate local government efficiency, data envelopment analysis and free disposal hull, as well as recent proposals, namely the order-m partial frontier and the nonparametric estimator proposed by Kneip et al. (Econom Theory 24(6):1663–1697, 2008). Second, to compare the four methods and choose the most appropriate one for our particular context and dataset (local government cost efficiency in Spain), we carry out an experiment via Monte Carlo simulations and discuss the relative performance of the efficiency scores under various scenarios. Our results suggest that there is no one approach suitable for all efficiency analysis. We find that for our sample of 1846 Spanish local governments, the average cost efficiency would have been between 0.5417 and 0.7543 during the period 2008–2015, suggesting that Spanish local governments could have achieved the same level of local outputs with about 25% and 46% fewer resources.
Highlights
Managing available resources efficiently at all levels of government is essential, in times of crisis, such as the one that until recently had serious effects on several European countries
We find that for our sample of 1846 Spanish local governments, the average cost efficiency would have been between 0.5417 and 0.7543 during the period 2008–2015, suggesting that Spanish local governments could have achieved the same level of local outputs with about 25% and 46% fewer resources
We find that for our sample of Spanish local governments, all methods showed some room for improvement in terms of possible cost efficiency gains, they present large differences in inefficiency levels
Summary
Managing available resources efficiently at all levels of government (central, regional, and municipal) is essential, in times of crisis, such as the one that until recently had serious effects on several European countries. Despite the high number of empirical contributions, a major challenge is the lack of clear, standard methodology to evaluate municipalities’ efficiency This problem is well known in the efficiency measurement literature, in local government most studies focus on one approach only, few have attempted to use two or more methods for comparative purposes. We find that for our sample of Spanish local governments, all methods showed some room for improvement in terms of possible cost efficiency gains, they present large differences in inefficiency levels. Both DEA and FDH methodologies showed the most reliable efficiency results, according to the findings of our simulations.
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