The impact of government outsourcing on public spending: Evidence from European Union countries

Abstract

Reducing public spending was a major objective when governments across Europe increasingly turned to outsourcing as a mode of public service provision from the 1980s. Today, despite its prevalence, there is still little consensus in the literature on whether outsourcing is an effective policy as regards reducing spending. Using a panel data model for 25 European countries over the period 1990 to 2011, this article tests whether outsourcing actually led to a reduction in public spending. Results indicate that outsourcing failed to reduce government expenditures at the central government level. This finding persists even after controlling for expenditure dynamics and addressing potential endogeneity issues.

Outsourcing and Public Expenditure: An Aggregate Perspective with Regional Data

“…OECD (2011) introduces an empirical proxy for outsourcing that can be calculated from National Accounts and it has been used in the literature (e.g. Alonso et al, 2017;Potrafke, 2018). In particular, the outsourcing index is given by: In the next section we discuss the recent evolution of the outsourcing index in Spain, and we briefly describe the Spanish legislation regarding outsourcing.…”

“…España ofrece un marco de estudio idóneo desde una perspectiva regional, ya que el grado de descentralización de la salud pública y de la educación es casi completo, y las diferentes regiones han adoptado enfoques bastante distintos en cuanto a la combinación público-privada en la prestación de estos servicios públicos. En línea con la evidencia disponible a escala internacional [Alonso et al (2017), Potrafke (2018)], nuestros resultados apuntan a una relación positiva entre el gasto público y la subcontratación.…”

“…However, the empirical literature exploring this issue is relatively scarce. Alonso et al (2017) regress the share of public spending over GDP on a country-specific index of public outsourcing in a sample of European countries, and uncover a positive association finding that higher public sector outsourcing is positively correlated with higher growth in public employment.…”

“…In this paper, we explore the relationship between public outsourcing and public spending across Spanish regions over the 2002-2018 period. Based on similar approaches to those in Alonso et al (2017) and Potrafke (2018), we employ two strategies to identify the effect of outsourcing on public spending. Our first strategy is to control for region-specific factors affecting both outsourcing and public spending by including region fixed effects.…”

The Public-Private Partnership Model in the Management of Early Childhood Policy in Medellin: Case Study

“…In contrast, other authors argue that outsourcing and privatizing by hiring private companies delegitimizes the state due to misuse of resources, corruption, financial scandals and the poor quality of the services provided (24). Besides, the government's savings in terms of public spending have not been demonstrated; on the contrary, the pressure of interest groups increases, and employment decreases (25). In Latin America, criticisms have arisen because of the inevitable consequences of hiring private institutions for the provision of public policies, since their presence requires the generation of profit, the targeting of the beneficiaries of the programs and the behavior of all the actors as that of an interest group, thus losing the public and universal rights of social policies" (23,(26)(27)(28).…”