Was local government efficiency affected by the Troika’s intervention in Portugal?

A decentralization process is underway in Portugal with the increased attribution of competencies to local governments hoping to benefit from efficiency gains. However, during the Troika intervention, the austerity measures adopted by the Portuguese government impacted the functioning of local administrations. This paper studies the efficiency in local governments and its drivers and provides empirical evidence about the impact of Troika’s intervention on the Portuguese municipalities.

The paper evaluates the efficiency of the 278 mainland municipalities by relating the cost of providing public services to the quantity of services provided. The analysis is performed for 2010 and 2015, before and after the Troika’s intervention in Portugal.

The paper finds that the determinants of efficiency are similar before and after the Troika. Variables such as Democratic participation, Education level, Fiscal autonomy and State Transfers over Current Expenses, have an effect on the efficiency scores. A more educated population contributes to the improvement of performance of each municipality. The higher the share of self-generated revenues on total revenues (i.e., fiscal autonomy), the more efficient is the municipality. The results also show a positive association between transfers from central government and efficiency. And finally, contrary to what was expected, the coefficient on Democratic participation exhibits a negative sign, arguably due to an electoral cycle effect.

Finally, the results indicate that there is no structural change in efficiency from 2010 to 2015, suggesting that the reforms implemented in municipalities with the Troika had no discernible statistical effect.

Click here to go to the paper by Maria Basílio, Clara Pires, Carlos Borralho, and José Pires Reis.