On the determinants of local government performance: A two-stage nonparametric approach

Abstract

This article analyzes the efficiency of Comunitat Valenciana (Spain) local governments and their main explanatory variables. The analysis is performed in two stages. Firstly, efficiency is measured via (nonparametric) activity analysis techniques. The measurement techniques also enable the sources of inefficiency to be identified, i.e., whether inefficiencies are primarily overall cost, technical, or allocative. The second stage identifies some critical determinants of efficiency, focusing both on political and fiscal policy variables. In contrast to previous two-stage research studies, our approach performs the latter attempt via nonparametric smoothing techniques, rather that econometric methods -such as OLS or Tobit related. Results show that inefficiencies are largely attributable to allocative factors, resulting in a notable gap between cost and technical efficiency. Inefficiencies are also larger for small municipalities. However, they are not exclusively attributable to poor management, as second-stage analysis reveals both fiscal and policy variables, either within or outside local governments control, to be explicably related to municipalities' performance. KEYWORDS:efficiency, kernel smoothing, local government, nonparametric regression.JEL classification: D24, D60, H71, H72. RESUMENEste trabajo analiza la eficiencia de las corporaciones locales de la Comunidad Valenciana y sus factores determinantes. El análisis se lleva a cabo en dos etapas. En primer lugar, la eficiencia es medida a través de técnicas (no paramétricas) de análisis de la actividad. El empleo de este tipo de técnicas permite también identificar las fuentes de ineficiencia, esto es, si esta es básicamente en costes, técnica o de carácter asignativo. La segunda etapa identifica algunos determinantes clave de la eficiencia, centrándose tanto en variables políticas, así como de política fiscal. Frente a estudios previos en dos etapas, nuestro enfoque lleva a cabo este último objetivo a través de técnicas no paramétricas de suavizado, en lugar de métodos econométricos (tales como MCO o modelos Tobit). Los resultados indican que las ineficiencias son atribuibles en gran parte a factores asignativos, dando lugar a un margen considerable entre eficiencia en costes y eficiencia técnica. La ineficiencia también es mayor para las corporaciones locales más pequeñas. Sin embargo, no es atribuible exclusivamente a una gestión deficiente, pues el análisis de segunda etapa muestra que tanto las variables políticas como las de política fiscal, independientemente de si están o no bajo el control de las corporaciones locales, se hayan relacionadas con su nivel de eficiencia.

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