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Value for money? German local government efficiency in a comparative perspective

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In this article, we investigate the cost efficiency of German local governments in the state of Baden-Württemberg in 2004 using a stochastic frontier approach. Besides being the first study on German data, we add two elements to the literature. First, we provide a comparative perspective, allowing us to embed our results in the broader literature. Second, unlike most previous studies, we explicitly account for exogenous or nondiscretionary influences when estimating municipal efficiency scores. The results suggest that disregarding such exogenous factors can lead to significant and systematic bias in the estimated inefficiency levels. Particularly, underestimation of efficiency occurs for municipalities with high tourist activity, while the reverse is true for municipalities with high unemployment.

Document Type: Research Article


Affiliations: 1: Zentrum für Europäische wirtschaftsforschung (ZEW),Department of Corporate Taxation and Public Finance, L 7, 1, D-68161 Mannheim, Germany 2: Norwegian School of Management (BI), Nydalsveien 37,N-0442 Oslo, Norway

Publication date: January 1, 2012

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