In the debate on the consolidation of the (local) German budgets (states and municipalities) considerations aiming either at the consolidation of the revenue side (taxes) or expenditure side (transfer payments) of the budgets are prevalent. In contrast, the possibility of an increase of the (technical) efficiency in the provision of public goods is very rarely discussed. This is very surprising since the performance of the public sector plays a very important role in the competition for mobile factors like (qualified) labour and capital. Therefore, the aim of this project is to calculate efficiency measures for the performance of the public sector of local governments in Germany and, in a second step, to identify the central determinants of this efficiency. In this project the effects of two determinants will attract special interest: the size of population and the German (local) fiscal equalization scheme. In the light of the decreasing population reaching many German states and municipalities in the forthcoming decades, it is very important to know how this demographic change affects the efficiency in the provision of public goods. Furthermore, from the theoretical literature it can be assumed, that fiscal equalization schemes create ‘wrong’ incentives for the incumbents to provide public goods with minimal costs. So, with regard to this aspect, an empirical investigation of the effects of fiscal equalization schemes on the (technical) efficiency in the provision of public goods also could yield new interesting insights. It is planned to carry out these efficiency analyses on the one hand for local authorities as a whole (e.g. municipalities) and, on the other hand, for particular areas of public good provision like, for example, police services and road maintenance. The methods which will be applied in these analyses comprise the methods previously used in the literature: non-parametric as well as parametric methods.


Deutsche Forschungsgemeinschaft , Bonn , DE

Project duration

01.01.2008 - 31.12.2009


Cooperation partner

Universität Heidelberg, Heidelberg, DE