PUBLIC SECTOR EFFICIENCY: EVIDENCE FOR NEW EU MEMBER
STATES AND EMERGING MARKETS
*António Afonso$ #
Ludger Schuknecht# and
Vito Tanzi±Paper completed: January 2006.Non-technical summary
The importance of the efficient use of public resources and high-quality fiscal policies for economic
growth and stability and for individual well-being has been brought to the forefront by a number of
developments over the past decades. Macroeconomic constraints limit countries’ scope for expenditure
increases. The member states of the European Union are bound to fiscal discipline through the Stability
and Growth Pact. Globalisation makes capital and taxpayers more mobile and exerts pressure on
governments’ revenue base. New management and budgeting techniques have been developed and there
is more scope for goods and service provision via markets. Transparency of government practices across
the globe has increased, raising public pressure to use resources more efficiently.
Our contribution in this study is essentially threefold: first we discuss and survey conceptual and
methodological issues related to the measurement and analysis of public sector efficiency. Second we
construct Public Sector Performance and Efficiency composite indicators for the ten new member states
that acceded to the European Union (EU) on 1 May 2004 as compared to emerging markets from
different regions, future EU candidate countries and some current EU member countries that show
features of emerging markets and/or are undergoing a catching up process. Third we use Data
Envelopment Analysis to compute input and output efficiency scores and country rankings, which we
combine with a Tobit analysis to see whether exogenous, non-discretionary factors play a role in
explaining expenditure inefficiencies. To our knowledge, such an efficiency analysis has not been
applied before to this set of countries.
The Public Sector Performance and Efficiency composite indicator includes information on
administrative, education, health, income distribution, economic stability, and economic performance
* We are grateful to Gerhard Schwab for assistance with the data, and Elizabeth Morton for editorial assistance. Any
remaining errors are the responsibility of the authors. The opinions expressed herein are those of the authors and do not
necessarily reflect those of the author’s employers.
$ ISEG/UTL – Technical University of Lisbon, Department of Economics; UECE – Research Unit on Complexity in
Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal, email: [email protected]. UECE is supported by FCT
(Fundação para a Ciência e Tecnologia, Portugal), under the POCTI program, financed by ERDF and Portuguese funds.
# European Central Bank, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany, emails: [email protected];
[email protected].
± Inter-American Development Bank, Washington, D. C., email: [email protected].