Local government efficiency in German municipalities

Abstract

This article evaluates German local governments’ cost efficiency using a sample of 1021 municipalities in the state of Baden-Württemberg for the year 2001. We thereby concentrate on overall or ‘global’ efficiency scores – rather than estimate efficiency for one particular service – and explicitly account for exogenous or non-discretionary influences. The latter not only corrects for influences possibly beyond the control of local policy-makers, but also allows some indication with respect to the determinants of such ‘global’ efficiency. Our results indicate that there is a substantial divergence in efficiency across municipalities despite a homogeneous institutional setting. As especially smaller municipalities appears less efficient, these results support a case for policy programs aimed at boundary reviews or more extensive inter-communal cooperation among small municipalities