Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279173 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10424
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We assess notably how do extreme events affect the public sector efficiency of decentralized governance. Hence, we empirically link the public sector efficiency scores, to tax revenue and spending decentralization. First, we compute government spending efficiency scores via data envelopment analysis. Second, relying on panel data and impulse response approaches, we estimate the effect of decentralization on public sector efficiency and how extreme natural disasters mediate this relationship. The sample covers 36 OECD countries between 2006 and 2019. Our results show that tax revenue decentralization decreases public sector efficiency, while spending decentralization and a regional authority index are positively related to public sector efficiency, both for local projections and panel analysis. For instance, efficiency rises by 10 percent following a spending decentralization shock (reaching over 20 percent after 4 years). Nevertheless, in cases of natural disasters, spending decentralization reduces public sector efficiency. Specifically, in the presence of most extreme natural disasters, the improvement in public sector efficiency after a spending decentralization shock is smaller than in their absence. Moreover, extreme natural disasters also deteriorate the negative effect of tax revenue decentralization on public sector efficiency. These results suggest that sub-national discretionary spending and tax revenue responses might be less fruitful when such extreme events occur.
Subjects: 
public sector efficiency
data envelopment analysis
local projections
revenue decentralization
spending decentralization
natural disasters
OECD
JEL: 
C14
C23
E62
H11
H50
Document Type: 
Working Paper
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