Analysis of Portuguese Local Government Efficiency: An Application of Data Envelopment Analysis

This study intends to analyse the relative efficiency of expenditure in local government, through data envelopment analysis. As the production measure, indicators of outputs regarding expenditure per municipal function were defined, using data for Portuguese local government. Thais allows assessment of the possible extent of improved municipal performance in relation to the frontier of "best practice", regarding expenditure per function. The results reveal that, for the selected functions of municipal expenditure, Portuguese local government obtained average efficiency oriented to inputs of 79% nationally. The results obtained also indicate a great variety in efficiency levels in relation to the groups of local governments and functions analysed, where medium-sized governments, those on the coast, and in the regions of the Algarve, Lisbon Metropolitan Area and the Autonomous Region of Madeira present efficiency levels above the national average. The paper contributes to the empirical-theoretical literature by supplying new evidence concerning the efficiency analysis of local government. Indeed, studies of local spending efficiency are still not abundant in the economic literature and, as far the authors know, are not available for Portugal, in particularly for municipalities' after the global economic crisis.