Municipal efficiency: What is the importance of the administrative organisation of municipalities and the local fiscal environment?

Abstract

According to the budget literature, budget institutions and administrative organization are of great importance for public organizations’ financial results. But can a particular kind of administrative organization contribute to improving a municipality’s efficiency? Empirically, the analysis shows that both the local fiscal environment and the administrative organization of municipalities affect efficiency. The efficiency is lower, the less hard-pressed the municipality is financially, the smaller the size of the municipality and/or if the municipality is organized according to an executive model without separate administrative responsibility. According to previous studies, executive models can strengthen financial steering in the form of budget balance and expenditure control. The present analysis indicates that, conversely, the executive model’s – intended – separation from the professional environments and employees seems to reduce municipal efficiency. Thus, the choice of administrative organization seems to involve a trade-off between strong expenditure control and high efficiency.