Technical Efficiency of Local Government Spending Based on DEA: Evidence from Central China

With ever-insufficient supply of resources and a deteriorated environmental situation, it's more necessary to evaluate the efficiency of the public expenditure by the local governments at all levels. This paper aims to examine the trends of technical efficiency of local governments spending and to identify the key determinants of their efficiency scores By using Data Envelop Analysis (DEA) method, the data from local governments in central China between 1998 and 2005 are examined by two stages. The first stage involves the measurement of technical efficiency effects, under the assumption that those inefficiency effects are identically distributed. The second stage employs a simple linear regression model to identify the determinants affecting technical efficiency. We conclude that capital expenditures, GDP, and human capital are all found to have positive effects on the efficiency of four provinces in central China, but spending structure has little effect on efficiency of these provinces.