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Quality of Government and Living Standards: Adjusting for the Efficiency of Public Spending

Author

Listed:
  • Mr. Francesco Grigoli
  • Mr. Eduardo Ley
Abstract
It is generally acknowledged that the government’s output is difficult to define and its value is hard to measure. The practical solution, adopted by national accounts systems, is to equate output to input costs. However, several studies estimate significant inefficiencies in government activities (i.e., same output could be achieved with less inputs), implying that inputs are not a good approximation for outputs. If taken seriously, the next logical step is to purge from GDP the fraction of government inputs that is wasted. As differences in the quality of the public sector have a direct impact on citizens’ effective consumption of public and private goods and services, we must take them into account when computing a measure of living standards. We illustrate such a correction computing corrected per capita GDPs on the basis of two studies that estimate efficiency scores for several dimensions of government activities. We show that the correction could be significant, and rankings of living standards could be re-ordered as a result.

Suggested Citation

  • Mr. Francesco Grigoli & Mr. Eduardo Ley, 2012. "Quality of Government and Living Standards: Adjusting for the Efficiency of Public Spending," IMF Working Papers 2012/182, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/182
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    2. Francesco Grigoli Author-Email: fgrigoli@imf.org Author-Name: Eduardo Ley Author-Email: eley@worldbank.org, 2012. "Quality of Government and Living Standards," World Bank - Economic Premise, The World Bank, issue 89, pages 1-6, September.
    3. Francesco Grigoli, 2015. "A Hybrid Approach to Estimating the Efficiency of Public Spending on Education in Emerging and Developing Economies," Applied Economics and Finance, Redfame publishing, vol. 2(1), pages 19-32, February.
    4. Siham MATALLAH & Lahouari BENLAHCENE, 2021. "Public service delivery dilemma and economic growth challenges in the MENA Region," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(629), W), pages 31-50, Winter.
    5. Musharraf Cyan & Jorge Martinez-Vazquez & VIoleta Vulovic, 2013. "Measuring tax effort: Does the estimation approach matter and should effort be linked to expenditure goals?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1308, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. Musharraf Rasool Cyan & Jorge Martinez-Vazquez & Violeta Vulovic, 2014. "New approaches to measuring tax effort," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 2, pages 27-68, Edward Elgar Publishing.

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