Explaining local governments' cost efficiency: Controllable and uncontrollable factors

Abstract

Efficient and effective management of public resources is essential at all levels of government. This issue has gained momentum due to the strains that affected public sector finances after the onset of the 2007/08 crisis in many countries, particularly in Europe. In this article, we evaluate the influence of environmental variables that affect local government efficiency in one European country, Spain, during the crisis years (2009–2015). To this end, and considering the possible influence of both controllable and uncontrollable factors, we use an approach that is able to analyse their impact across the conditional distribution of performance, and which controls for the (likely) existence of endogeneity among regressors. Results show an asymmetry in the determinants of performance since the role played by some variables depends largely on the conditional distribution of efficiency. Results are robust not only because of the instrumental variables quantile regression approach considered, but also due to the variety of models specified to measure municipalities' performance as well as the diversity of covariates.