Skip to main content
SpringerLink
Log in

Decentralization and efficiency of local government

  • Original Paper
  • Published:
The Annals of Regional Science Aims and scope Submit manuscript

Abstract

This study analyzes the links between efficiency and the decentralization of power in Spanish local governments for the years 1995 and 2000. To this end, we carried out a two-stage activity analysis in which the performance of each municipality was first evaluated against other municipalities with a similar level of power and, in a second stage, compared with that of other municipalities for which decentralization remained at a more preliminary stage. Results suggest that some municipalities could manage their resources more efficiently if they were granted more power. Although these sort of decentralized economies do not emerge for all municipalities, their magnitude clearly overshadows the diseconomies found if downscaling of decision making goes too far and least decentralized municipalities dominate. In addition, the likely efficiency gains from enhanced decentralization increase over time.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Alesina A (1999) Too large and too small governments. In: Tanzi V, Chu K, Gupta S (eds) Economic policy and equity. International Monetary Fund, Washington, DC, pp 216–234

  • Balaguer-Coll MT, Prior D, Tortosa-Ausina E (2007) On the determinants of local government performance: a two-stage nonparametric approach. Eur Econ Rev 51(2): 425–451

    Article  Google Scholar 

  • Barankay I, Lockwood B (2007) Decentralization and the productive efficiency of government: evidence from Swiss cantons. J Public Econ 91(5-6): 1197–1218

    Article  Google Scholar 

  • Bennett RJ (1997) Administrative systems and economic spaces. Reg Stud 31(3): 323–336

    Article  Google Scholar 

  • Berglas E, Pines D (1981) Clubs, local public goods and transportation models: a synthesis. J Public Econ 15(2): 141–162

    Article  Google Scholar 

  • Besley T, Coate S (2003) Centralized versus decentralized provision of local public goods: a political economy approach. J Public Econ 87: 2611–2637

    Article  Google Scholar 

  • Bosch N, Suárez-Pandiello J (1993) Institutional restrictions and local public economics: a Spanish approach. J Public Financ Public Choice 11(2–3): 111–121

    Google Scholar 

  • Bosch N, Suárez-Pandiello J (1995) Seven hypotheses about public choice and local spending (a test from Spanish municipalities). Public Financ 50(1): 36–50

    Google Scholar 

  • Bosch N, Pedraja F, Suárez-Pandiello J (2000) Measuring the efficiency of Spanish municipal refuse collection services. Local Gov Stud 26(3): 71–90

    Google Scholar 

  • Bradford D, Malt R, Oates W (1969) The rising cost of local public services: some evidence and reflections. Natl Tax J 22: 185–202

    Google Scholar 

  • Cai H, Treisman D (2004) State corroding federalism. J Public Econ 88: 819–843

    Article  Google Scholar 

  • Cerniglia F (2003) Decentralization in the public sector: quantitative aspects in federal and unitary countries. J Policy Model 25: 749–776

    Article  Google Scholar 

  • Charnes A, Cooper WW, Rhodes E (1978) Measuring the efficiency of decision making units. Eur J Oper Res 2(6): 429–444

    Article  Google Scholar 

  • Crook RC, Sverrisson AS (2001) Decentralisation and poverty-alleviation in developing countries: a comparative analysis or, is West Bengal unique? Working Paper 130, Institute of Development Studies (IDS), University of Sussex, Brighton

  • Davoodi H, Zou H (1998) Fiscal decentralization and economic growth: a cross-country study. J Urban Econ 43(2): 244–257

    Article  Google Scholar 

  • De Borger B, Kerstens K (1996a) Cost efficiency of Belgian local governments: a comparative analysis of FDH, DEA, and econometric approaches. Reg Sci Urban Econ 26: 145–170

    Article  Google Scholar 

  • De Borger B, Kerstens K (1996b) Radial and nonradial measures of technical efficiency: an empirical illustration for Belgian local governments using an FDH reference technology. J Prod Anal 7: 41–62

    Article  Google Scholar 

  • Deller SC (1990) An application of a test for allocative efficiency in the local public sector. Reg Sci Urban Econ 20: 395–406

    Article  Google Scholar 

  • Deller SC (1992) Production efficiency in local government: a parametric approach. Public Financ 47: 32–44

    Google Scholar 

  • Deprins D, Simar L, Tulkens H (1984) Measuring labor-efficiency in post offices. In: Marchand M, Pestieau P, Tulkens H (eds) The performance of public enterprises: concepts and measurement, Chap 10. North-Holland, Amsterdam, pp 243–267

    Google Scholar 

  • Ebel RD, Yilmaz S (2002) On the measurement and impact of fiscal decentralization. Policy Research Working Paper 2809. The World Bank, Washington

    Book  Google Scholar 

  • Faguet J-P (2004) Does decentralization increase government responsiveness to local needs? Evidence from Bolivia. J Public Econ 88: 867–893

    Article  Google Scholar 

  • Fan Y (1994) Testing the goodness-of-fit of a parametric density function by kernel method. Econ Theory 10: 316–356

    Article  Google Scholar 

  • Fan Y, Ullah A (1999) On goodness-of-fit tests for weekly dependent processes using kernel method. J Nonparametr Stat 11: 337–360

    Article  Google Scholar 

  • Färe R, Grosskopf S, Lovell CAK (1994) Production frontiers. Cambridge University Press, Cambridge

    Google Scholar 

  • Farrell MJ (1957) The measurement of productive efficiency. J R Stat Soci Ser A 120: 253–281

    Article  Google Scholar 

  • Fox KJ (2001) Efficiency in the public sector, studies in productivity and efficiency, vol 1. Kluwer, Boston

    Google Scholar 

  • Garcia-Mila T, McGuire TJ (2002) Fiscal decentralization in Spain: an asymmetric transition to democracy. Technical report, Universitat Pompeu Fabra

  • Gil Jiménez F (2001) Une analyse des desequilibres financiers des collectivites locales en Espagne. Rev Econ Reg Urbaine 0(3): 369–392

    Google Scholar 

  • Gilbert G, Picard P (1996) Incentives and optimal size of local jurisdictions. Eur Econ Rev 40(1): 19–41

    Article  Google Scholar 

  • Giménez V, Prior D (2007) Long-and short-term cost efficiency frontier evaluation: evidence from Spanish local Governments. Fiscal Stud 28(1): 121–139

    Article  Google Scholar 

  • Giménez VM (2004) Un modelo FDH para la medida de la eficiencia en costes de los departamentos universitarios. Hacienda Pública Española/Revista de Economfa Pública 168(1): 69–92

    Google Scholar 

  • Grosskopf S, Hayes KJ (1993) Local public sector bureaucrats and their input choices. J Urban Econ 33: 151–166

    Article  Google Scholar 

  • Grosskopf S, Yaisawarng S (1990) Economies of scope in the provision of local public services. Natl Tax J 43(1): 61–74

    Google Scholar 

  • Hayes KJ, Chang S (1990) The relative efficiency of city manager and mayor-council forms of government. South Econ J 57: 167–177

    Article  Google Scholar 

  • Hochman O, Pines D, Thisse J (1995) On the optimal structure of local governments. Am Econ Rev 85(5): 1224–1240

    Google Scholar 

  • Hughes PAN, Edwards ME (2000) Leviathan vs. Lilliputian: a data envelopment analysis of government efficiency. J Reg Sci 40(4): 649–669

    Article  Google Scholar 

  • Iimi A (2005) Decentralization and economic growth revisited: an empirical note. J Urban Econ 57(3): 449–461

    Article  Google Scholar 

  • Inman R, Rubinfeld D (1997) Rethinking federalism. J Econ Perspect 11(4): 43–64

    Google Scholar 

  • Inman R, Rubinfeld D (1998) Subsidiarity and the European Union. Working Paper 6556, NBER, Cambridge

  • Keating M (1998) The new regionalism in Western Europe: territorial restructuring and political change. Edward Elgar, Northampton

    Google Scholar 

  • Kerstens K, Vanden Eeckaut P (1999) Estimating returns to scale using non-parametric deterministic technologies: A new method based on goodness-of-fit. Eur J Oper Res 113: 206–214

    Article  Google Scholar 

  • Klugman J (1994) Decentralisation: a survey of literature from a human development perspective. Development Programme Occasional Paper 13, United Nations, Human Development Report Office, New York

  • Ladd HF (1994) Fiscal impacts of population growth: a conceptual and empirical analysis. Reg Sci Urban Econ 24: 661–686

    Article  Google Scholar 

  • Li Q (1996) Nonparametric testing of closeness between two unknown distribution functions. Econ Rev 15: 261–274

    Article  Google Scholar 

  • López Guerra L (1987) Constitución Espaola. Tecnos, Madrid

  • Martinez-Vazquez J, McNab R (2003) Fiscal decentralization and economic growth. World Dev 31(9): 1597–1616

    Article  Google Scholar 

  • Martins-Filho C, Yao F (2007) Nonparametric frontier estimation via local linear regression. J Econ 141(1): 283–319

    Google Scholar 

  • Martins-Filho C, Yao F (2008) A smooth conditional quantile frontier estimator. J Econ 143: 317–333

    Google Scholar 

  • Minis H, Rondinelli D (1990) Administrative restructuring for economic adjustment: decentralization policy in Senegal. Int Rev Adm Sci 56: 447–466

    Article  Google Scholar 

  • Molero J-C (2001) Analysis of decentralization of public spending in Spain. Public Financ Manag 1(4): 500–556

    Google Scholar 

  • Monasterio Escudero C, Suárez Pandiello J (1998) Manual de Hacienda Autonómica y Local. Ariel, Barcelona

  • Moreno L (2002) Decentralization in Spain. Reg Stud 36(4): 399–408

    Article  Google Scholar 

  • Oates WE (1972) Fiscal federalism. Harcourt Brace Jovanovich, Inc., New York

  • Oates WE (1988) On the measurement of congestion in the production of local public goods. J Urban Econ 24: 85–94

    Article  Google Scholar 

  • Oates WE (1993) Fiscal decentralization and economic development. Working Paper 04, Economics Department, University of Maryland

  • Oates WE (1999) An essay on fiscal federalism. J Econ Lit 37(3): 1120–1149

    Google Scholar 

  • Olson M Jr (1969) The principle of “fiscal equivalence”: the division of responsibilities among different levels of government. Am Econ Rev 59(2): 479–487

    Google Scholar 

  • Pagan A, Ullah A (1999) Nonparametric econometrics. Themes in modern econometrics. Cambridge University Press, Cambridge

    Google Scholar 

  • Park BU, Simar L, Weiner C (2000) The FDH estimator for productivity efficiency scores. Econ Theory 16(6): 855–877

    Article  Google Scholar 

  • Pastor J, Tortosa-Ausina E (2008) Social capital and bank performance: an international comparison for OECD countries. Manchester Sch 76(2): 223–265

    Article  Google Scholar 

  • Prieto ÁM, Zofío JL (2001) Evaluating effectiveness in public provision of infrastructure and equipment: The case of Spanish municipalities. J Prod Anal 15(1): 41–58

    Article  Google Scholar 

  • Prior D, Sola M (2000) Technical efficiency and economies of diversification in health care. Health Care Manag Sci 3: 299–307

    Article  Google Scholar 

  • Prud’homme R (1994) On the dangers of decentralization. Policy Research Working Paper 1252, World Bank, Washington

    Google Scholar 

  • Prud’homme R (1995) The dangers of decentralization. World Bank Res Obs 10: 201–220

    Article  Google Scholar 

  • Putnam RD (1993) Making democracy work: civic traditions in modern Italy. Princeton University Press, Princeton, NJ

    Google Scholar 

  • Rodríguez-Pose A, Bwire A (2004) The economic (in)efficiency of devolution. Environ Plann A 36(11): 1907–1928

    Article  Google Scholar 

  • Rodríguez-Pose A, Gill N (2005) On the ‘economic dividend’ of devolution. Reg Stud 39(4): 405–420

    Article  Google Scholar 

  • Rondinelli D, Nellis J (1986) Assessing decentralization policies in developing countries: the case for cautious optimism. Dev Policy Rev 4(1): 3–23

    Article  Google Scholar 

  • Ruggiero J (1995) On the measurement and causes of technical inefficiency in local public services: With an application to public education. J Public Admin Res Theory 5(4): 403–428

    Google Scholar 

  • Sampaio de Sousa M, Stošić B (2005) Technical efficiency of the Brazilian municipalities: correcting nonparametric frontier measurements for outliers. J Prod Anal 24: 157–181

    Article  Google Scholar 

  • Sewell DO (1996) The dangers of decentralization according to prud’homme: Some further aspects. World Bank Res Obs 11(1): 143–150

    Google Scholar 

  • Shah A (1999) Fiscal federalism and macroeconomic governance: For better or for worse?. In: Fukasaku K, De Mello LR (eds) Fiscal decentralization in emerging countries: governance issues. OECD, Paris, pp 37–54

    Google Scholar 

  • Sheather SJ, Jones MC (1991) A reliable data-based bandwidth selection method for kernel density estimation. J R Stat Soc Ser B 53(3): 683–690

    Google Scholar 

  • Shleifer A (1997) Government in transition. Eur Econ Rev 41(3-5): 385–410

    Article  Google Scholar 

  • Silverman BW (1986) Density estimation for statistics and data analysis. Chapman and Hall, London

    Google Scholar 

  • Simar L, Wilson PW (2000) Statistical inference in nonparametric frontier models: the state of the art. J Prod Anal 13(1): 49–78

    Article  Google Scholar 

  • Simar L, Zelenyuk V (2006) On testing equality of distributions of technical efficiency scores. Econ Rev 25(4): 497–522

    Article  Google Scholar 

  • Smith BC (1985) Decentralization: the territorial dimension of state. George Allen & Unwin, London

    Google Scholar 

  • Solé-Ollé A (1997) Tax exporting and redistributive politics: an empirical investigation on the determinants of Spanish local tax structure. Public Financ 52(1): 102–124

    Google Scholar 

  • Solé-Ollé A (2001) Determinantes del gasto público local: necesidades de gasto o capacidad fiscal. Rev Econ Apl 25: 115–156

    Google Scholar 

  • Solé-Ollé A, Bosch N (2002) On the relationship between local authority size and expenditure: lessons for the design of intergovenmental transfers in Spain. Technical report, Institut d’Economia de Barcelona, Barcelona

  • Stewart K (2000) Fiscal federalism in Russia: intergovernmental transfers and the financing of education. Edward Elgar Publishing,

  • Suárez Pandiello J (1999) Fiscal federalism in Spain. Decentralisation: an unfinished task. In: Fossati A, Panella G (eds) Fiscal federalism in the European Union. Routledge, London

    Google Scholar 

  • Tanzi V (1995) Fiscal federalism and decentralization: A review of some efficiency and macroeconomic aspects. In: Bruno M, Pleskovic B (eds) Annual World Bank Conference on development economics. World Bank, Washington, pp 295–316

    Google Scholar 

  • Taylor LL (1995) Allocative efficiency and local government. J Urban Econ 37: 201–211

    Article  Google Scholar 

  • Tiebout C (1956) A pure theory of local expenditures. J Polit Econ 64: 416–424

    Article  Google Scholar 

  • Treisman D (2002) Decentralization and the quality of government. Working paper, Department of Political Science, UCLA, Los Angeles

  • Tulkens H (1993) On FDH efficiency analysis: some methodological issues and applications to retail banking, courts, and urban transit. J Prod Anal 4: 183–210

    Article  Google Scholar 

  • Tulkens H, Vanden Eeckaut P (1995) Non-parametric efficienct, progress and regress measures for panel data: Methodological aspects. Eur J Oper Res 80: 474–499

    Article  Google Scholar 

  • Vanden Eeckaut P, Tulkens H, Jamar M-A (1993) Cost efficiency in Belgian municipalities. In: Fried HO, Lovell CAK, Schmidt SS (eds) The measurement of productive efficiency, Chap 12.. Oxford University Press, Oxford, pp 300–334

    Google Scholar 

  • Wallis JJ, Oates WE (1988) Decentralization in the public sector: an empirical study of the state and local government. In: Rosen HS (eds) Fiscal federalism: quantitative studies, National Bureau of Economic Research, Chap 1. University of Chicago Press, Chicago, pp 5–32

    Google Scholar 

  • Worthington AC (2000) Cost efficiency in Australian local government: a comparative analysis of mathematical programming and econometric approaches. Financ Account Manag 16: 201–223

    Article  Google Scholar 

  • Worthington AC, Dollery BE (2000a) An empirical survey of frontier efficiency measurement techniques in local government. Local Govern Stud 26: 23–52

    Google Scholar 

  • Worthington AC, Dollery BE (2000b) Measuring efficiency in local governments’ planning and regulatory function. Public Prod Manag Rev 23(4): 469–485

    Article  Google Scholar 

  • Worthington AC, Dollery BE (2000c) Productive efficiency and the Australian local government grants process: An empirical analysis of New South Wales local government. Aust J Reg Stud 6(1): 95–121

    Google Scholar 

  • Xie D, Zou H, Davoodi H (1999) Fiscal decentralization and economic growth in the United States. J Urban Econ 45(2): 228–239

    Article  Google Scholar 

  • Zhang T, Zou H (1998) Fiscal decentralization, public spending, and economic growth in China. J Public Econ 67(2): 221–240

    Article  Google Scholar 

  • Zhang T, Zou H (2001) The growth impact of intersectoral and intergovernmental allocation of public expenditure With applications to China and India. China Econ Rev 12(1): 58–81

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Finance and Accounting, Universitat Jaume I, Campus del Riu Sec, 12071, Castelló de la Plana, Spain

    Maria Teresa Balaguer-Coll

  2. Department of Business Economics, Universitat Autònoma de Barcelona, 08193, Bellaterra, Barcelona, Spain

    Diego Prior

  3. Department of Economics, Universitat Jaume I, Campus del Riu Sec, 12071, Castelló de la Plana, Spain

    Emili Tortosa-Ausina

  4. Instituto Valenciano de Investigaciones Económicas (Ivie), Guardia Civil, 22, 46020, València, Spain

    Emili Tortosa-Ausina

Authors
  1. Maria Teresa Balaguer-Coll
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Diego Prior
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Emili Tortosa-Ausina
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Emili Tortosa-Ausina.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Balaguer-Coll, M.T., Prior, D. & Tortosa-Ausina, E. Decentralization and efficiency of local government. Ann Reg Sci 45, 571–601 (2010). https://doi.org/10.1007/s00168-009-0286-7

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00168-009-0286-7

JEL Classification

Search

Navigation