Public sector efficiency: the roles of political and budgetary institutions, fiscal capacity, and democratic participation

The purpose of this paper is to investigate whether efficiency in public service provision is affected by political and budgetary institutions, fiscal capacity, and democratic participation. In order to address this issue we take advantage of a new global efficiency measure for Norwegian local governments. We find that high fiscal capacity and a high degree of party fragmentation contribute to low efficiency. In addition there is some evidence that democratic participation increases efficiency, while a centralized top-down budgetary procedure is associated with low efficiency.