Measuring the efficiency of public expenditure in Argentine provinces

Córdoba

Conferencia; Arnoldshain Seminar XIV; 2016

Universidad Nacional de Córdoba

Despite the importance of the efficiency of public spending, there are relatively few studies which address these issues from a regional perspective. Most of the research on the subject is rather of national character. While the information contained in country studies is very valuable, a regional perspective has the advantage of allowing comparison between regions or provinces of similar level of development. This paper seeks to meet the need for evaluation of the behavior of sub-national public sector in terms of their efficiency in managing their basic activities.We proceed in two inter-linked stages, the use of indices of expenditure and sub-national socio-economic performance, and the estimation of efficiency frontiers for public spending.The use of indexes of expenditure and performance relates to the measurement of the performance of the Argentine provinces using information about: (i) inputs used by each jurisdiction for each object of expenditure, and (ii) final observed performance of spending for each of the jurisdictions. It is essential to construct and estimate provincial public expenditure (IGP) and Socio-economic Performance (IDSE) indices. In particular, we consider four basic needs covered by the provinces: health, education, security and infrastructure.The next step is the estimation of efficiency frontiers, linking the provincial IGP and IDSE. Public activities are thus regarded as a production process that transforms inputs into output, so that these indices are used for the creation of a "production-possibility frontier", which synthesize the results through the creation of an index of efficiency of public expenditure (IEGP).To estimate the "efficiency frontier" we apply the Data Envelopment Analysis (DEA) approach. This methodology allows obtaining the input-efficiency index.Finally, an aggregate indicator of efficiency of sub-national public sector spending summarizes the specific situation of each jurisdiction.