Measuring Municipal Spending Efficiency: Evidence from Macedonia’s Decentralization Reforms
LJUBINKA ANDONOSKA and ERIK ALDA
PFM, Vol. 19 No. 4, (2020)
Debates have been ongoing for decades about the efficiency of municipal services in centralized
or decentralized systems. The fundamental argument for decentralization is that it shifts decisionmaking
authority to local governments which are closer to citizens’ needs and preferences and thus
are better to know what is wanted. This study contributes to the growing literature on measuring
local government efficiency by using data from 79 Macedonian municipalities from 2008 to 2015
and assessing whether decentralization results in greater efficiency. The results indicate that more
decentralized municipalities are, on average, more efficient than less decentralized ones. There was,
however, a significant disparity in performance throughout the decentralization period, with small
municipalities often under-performing relative to larger ones. These results indicate that decentralization
has limited effects on the efficiency of municipal spending, and does not reduce disparities
across municipalities. The evidence suggests that many of the inequalities could be alleviated by
implementing equalization programs as a substantial part of a regional development strategy.
Keywords: Macedonia, Fiscal Decentralization, Data Envelopment Analysis (DEA), Efficiency,
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