Explaining Differences in Efficiency: A Meta‐study on Local Government Literature

Abstract

This paper reviews the literature on local government efficiency by meta‐reviewing 360 observations retrieved from 54 papers published from 1993 to 2016. The meta‐regression is based on a random‐effects model estimated with the two‐step random‐effects maximum likelihood (REML) technique proposed by Gallet and Doucouliagos. Results indicate that the study design matters when estimating a frontier in local government. We find that studies focusing on technical efficiency provide higher efficiency scores than works evaluating cost efficiency. The same applies when using panel data instead of cross‐section data. Interestingly, studies that use the Free Disposal Hull (FDH) approach yield, on average, higher efficiency scores than papers employing the data envelopment analysis (DEA) method, thereby suggesting that in this literature the convexity hypothesis of the production set is a matter. Finally, the efficiency of local government increases with the level of development of the analysed countries and is positively related to the national integrity of the legal system. The opposite holds when considering the corruption.

The Influence of Excellence on Municipal Performance: Quasi-Experimental Evidence From the Czech Republic

“…With larger municipalities, the main driver of efficiency improvement was the optimum scale, whereas at smaller municipalities the main driver of productivity growth was the better management of resources (Plaček et al, 2020). All results are confirmed by the conclusions (Aiello et al, 2017) that the use of DEA with variable yields with the scale reports higher efficiency than the use of DEA with constant yields from the scale. Using the FDH method brings higher reported results than the use of DEA.…”

“…The final recommendation of the Delphi panel was to choose the current expenditures as the main input variable. This option has justification in the literature (Aiello et al, 2017;McQuestin et al, 2018;Narbón-Perpina et al, 2019) and was also applied in previous research dealing with the Czech Republic (Plaček et al, 2019). There are also legal arguments based on Act on Municipalities 182/200 Coll and Act about Financial Control 320/2001.…”

“…However, very few articles use more than one of these methods to estimate efficiency (Narbón-Perpiňa and De Vitte, 2018a, b). Aiello et al (2017) state that the chosen method for estimating efficiency may influence the final results. For this article, the following nonparametric efficiency estimation methods were used: DEA (Banker et al, 1984;Charnes et al, 1978) in a variant with fixed and variable returns of scale, FDH (Deprins et al, 1984), and Order-M (Cazals et al, 2002).…”

Estimating local government efficiency using a panel data parametric approach: the case of Chilean municipalities

“…2 From this source of income, only 40% remains in the municipality for its own funding and the other 60% is directed to the municipal common fund (FCM ). 3 Commercial rights are regulated mainly by the municipality as it chooses the tax rate to charge (subject to a range established by the law). Of the amount of income collected by commercial rights, only the richest four municipalities (Santiago, Providencia, Las Condes and Vitacura) transfer a proportion to the FCM: Santiago 55% and the other three 65%.…”

“…This is regulated in the Law N o 17,235 about territorial tax 3. For the four richest municipalities, Santiago, Providencia, Las Condes and Vitacura percentage are: 35% and 65% respectively.…”