Productive Efficiency of Public Expenditures

Abstract

Public productivity, in particular the efficiency of public expenditures, has been a subject of academic and nonacademic debate for a long time. A number of studies have been conducted over the years on the subject using mostly conventional statistical methods such as production functions and occasionally using techniques such as data envelopment analysis (DEA). Most of these studies were conducted at a microlevel using a single decision unit with limited data. This study uses a multistage DEA to analyze public productivity using panel data for all fifty states of the United States over a twenty-one–year period. Based on well-known Farrell’s technical efficiency, the study measures productivity using both constant and variable returns to scale. The results of the study show that there has been a general decrease in efficiency during the study period, with some exceptions, consistent with the growth trend in the national economy.

Government spending and economic growth in the Middle East and North Africa region

“…Accordingly, as part of the financial management system, the effectiveness and efficiency of public expenditures influence the quality of public services and programs introduced to beneficiaries in the country (Ansari et al., 1997; Schick, 1998). According to Khan and Murova (2015: 170): “measuring efficiency of public expenditures has considerable value for government: public expenditures constitute a significant percentage of domestic output with a direct impact on public policy involving services such as education, health care, public safety, transportation, and welfare.”…”

“…In addition, considering the limited resources that countries have, limiting public fund waste, fighting corruption, and enhancing the effectiveness of public expenditures (i.e. budget allocations) are all targets of public policies, especially in developing economies (Brini and Jemmali, 2016; Khan and Murova, 2015). Thus, public expenditure efficacy has been associated with the quality of institutions and good governance practices (e.g.…”

A model for assessing the efficiency of government expenditure

“…The effectiveness and efficiency of public expenditures, as part of the financial management system, accordingly influence the quality of public services and programs introduced to the country's beneficiaries (Ansari et al, 1997;Schick, 1983Schick, , 1998. According to Khan and Murova (2015), "measuring efficiency of public expenditures has considerable value for government: public expenditures constitute a significant percentage of domestic output with a direct impact on public policy involving services such as education, health care, public safety, transportation, and welfare" (p. 170).…”

“…According to Farrell (1957), TE refers to the input-output relationship, and it "reflects the ability to avoid waste by producing as much output as input usage would allow and, conversely, by using as little input as output production would allow," while AE "reflects the optimal allocation of input factors" (p. 173). Many studies applied Farrell's concepts (i.e., technical efficiency and allocative efficiency) while exploring public spending efficiency (Hauner & Kyobe, 2010;Khan & Murova, 2015;Wang & Alvi, 2011). However, some scholars think Farrell's approach is suited to evaluate the efficiency of an organization's work and output more than the efficiency of a government's spending (Ghali, 1997;Rayp & Van De Sijpe, 2007).…”

“…Economic growth and diversity in a country's exports and imports (i.e., economic complexity) are essential to all government plans. Studies find that an effective allocation process of public expenses plays an important role in supporting productivity in the economy, enhancing the quality of the country's knowledge management system, and building good infrastructure projects through utilizing the public budget allocations (Khan & Murova, 2015;Kouzmin et al, 1999;Schick, 1983). Al-Faris (2002), after studying the relationship between public expenditures and economic growth, found that "economic growth is a predictive factor of the expanding role of government as exemplified by public expenditure" (p. 1190).…”