Public sector efficiency in Brazil

Abstract

This paper studies the public sector efficiency of Brazilian states. We follow a robust two‐step procedure to control for discretionary and non‐discretionary inputs in the production of publicly provided goods. The first step uses a robust nonparametric efficiency estimation method called Order‐m. We construct an index combining both expenditure and revenue efficiency indexes to obtain a general efficiency measure. The second step applies the regression models to control for non‐discretionary inputs that can affect the average production cost of goods and services. The results show Sao Paulo and Minas Gerais are the most efficient states, while Acre and Amapa are the least efficient. In addition, our findings indicate that variables such as unemployment, labor informality, and population density are significantly associated with efficiency. Our results provide valuable information to Brazilian subnational governments about their expenditure quality and tax effort, which will allow them to identify sectors where public efficiency can be improved.

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“…Most existing research on measuring public sector efficiency in a socioeconomic system have been conducted in two ways: One is by constructing comprehensive indicators to measure the efficiency, including the public sector efficiency index in policy areas of administration, education, infrastructure, and so on [14], and public service technology efficiency through the supplier and customer satisfaction opinion index [15], a comprehensive index combining the expenditure efficiency index and income efficiency index [16]. The other is using the DEA model to measure efficiency, such as the research and development efficiency of public and private sectors in EU countries [17], the Indian banking system's efficiency [18,19], 39 public sector entities operating efficiency in the province of Poland [20], and the effect of accrual accounting on efficiency of the state of Bavaria in Germany [21].…”