Revenue scarcity and government outsourcing: Empirical evidence from Norwegian local governments

Abstract

It is often said that ‘necessity is the mother of invention’. In this article, we assess whether this also applies to the design of public authorities' service provision. In particular, we evaluate whether revenue scarcity – as an indicator of fiscal stress – induces government outsourcing. In contrast to previous studies, we exploit arguably exogenous variation in local government revenue across time and space to derive stronger inferences on the role of revenue scarcity for outsourcing. Using data from Norwegian local governments covering the period 1995–2012, our main results indicate that a decrease in local government revenues is linked to more outsourcing of both infrastructure and support services.