The purpose of this paper is to analyze the efficiency of the 26 Swiss cantons over the period 2000 to 2004 applying Data Envelopment Analysis (DEA). A Total Public Sector Performance (TPSP) indicator for eight local government activities (administration, public safety, education, culture and sport, health, transportation, environment and spatial planning, and public economy) is calculated to measure technical efficiency. Efficiency scores are then related to the fiscal equalization scheme designed to reduce disparities between cantons with the expectation to find a negative relationship. Results show the existing scheme to indeed have a negative influence on the performance of financially advantaged cantons. Surprisingly, however, earmarked transfers from the confederation to the cantons are not found to have a stronger negative influence on cantonal performance, contradicting the rationale for their suppression in a recent reform. Most public services fail to exhibit economies of scale, undermining quests for centralization of public good provision and suggesting the possibility of Tiebout competition.
DEA efficiency measurement federalism fiscal equalization public finance Switzerland Tiebout competition