Estimating Local Government Efficiency using a Panel Data Parametric Approach: The Case of Chilean Municipalities

Pacheco, Francisca and Sanchez, Rafael and Villena, Mauricio G. (2017): Estimating Local Government Efficiency using a Panel Data Parametric Approach: The Case of Chilean Municipalities.

Abstract

Previous empirical evidence on municipal efficiency mostly uses cross-sectional data which makes it impossible to separate unobserved heterogeneity from inefficiency. Furthermore, they also typically use a two stages approach which has been widely criticized as the assumptions in the first stage are violated in the second stage, generating biased results. We present a longitudinal parametric study that analyzes municipal efficiency and its determinants using a one step procedure. Moreover, we analize overall e¢ ciency as well as efficiency by clusters of municipalities in order to reduce heterogeneity. We use administrative datasets of Chilean municipalities for 2008-2010 period and our results suggest that Chilean municipalities have on average an inefficiency level of 32% with a significant variance between clusters of municipalities. Also, our results suggest that socio-economic, fiscal and political variables affect municipal efficiency. In particular, we found that municipalities with tighter budget constraints are associated with more efficient municipalities.

• Item Type: MPRA Paper
• Language: English
• Keywords: Efficiency, Local governments, Panel Data, Parametric Estimation, Chile.
• Subjects: D - Microeconomics > D2 - Production and Organizations; D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H72 - State and Local Budget and Expenditures; H - Public Economics > H8 - Miscellaneous Issues > H83 - Public Administration ; Public Sector Accounting and Audits; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O54 - Latin America ; Caribbean

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