DP5639 Decentralization and the Productive Efficiency of Government: Evidence from Swiss Cantons

Author(s): Iwan Barankay , Ben Lockwood

Publication Date: April 2006

Keyword(s): decentralization , productive efficiency , local public goods

JEL(s): H40 , H52 , H70 , I20

Programme Areas: Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP5639.asp

Advocates of fiscal decentralization argue that amongst other benefits, it can increase the efficiency of delivery of government services. This paper is one of the first to evaluate this claim empirically by looking at the association between education expenditure decentralization and the productive efficiency of schools using a data-set of Swiss cantons. We first provide careful evidence that expenditure decentralization is a powerful proxy for legal local autonomy. Further panel regressions of Swiss cantons provide robust evidence that more decentralization is associated with higher educational attainment. We also show that these gains lead to no adverse effects across education types but that male students benefited more from educational decentralization closing, for the Swiss case, the gender education gap.