Determinants of Public Spending Efficiency: The Role of Institutions, Natural Resources Rents, and Economic Policies
Description
Data from 147 countries for the years 2010 and 2022 gathered from various sources, allow the calculation of public spending performance (PSP) on the basis of opportunity and Musgravian indicators. Public spending Efficiency (PSE) scores are then derived using Data Envelopment Analysis using the level of public spending (as % of GDP) as input and PSP as output. Simarwilson (2007) procedure is finally employed to analyze the determinants of public spending (in)efficiency using a host of explaining variables. The results indicate that inefficiency averages 33% in 2010 and 28% in 2022, meaning that countries have reduced inefficiency by 5% over the period, mainly by middle-income countries, and could reduce it further. Key elements for achieving this include in-depth institutional reform, accelerating digitization, improving human capital, developing the financial sector, liberalizing the economy, downsizing the administration and channeling natural resources’ rents towards productive development initiatives.