Public Spending Efficiency determinants New evidence using Simar and Wilson two-stage efficiency analysis

Data from 147 countries for the years 2010 and 2022 gathered from various sources, allow the calculation of public spending performance (PSP) on the basis of opportunity and Musgravian indicators. Public spending Efficiency (PSE) scores are then derived using Data Envelopment Analysis using the level of public spending (as % of GDP) as input and PSP as output. Simar and Wilson (2007) approach is finally employed to analyze the determinants of public spending (in)efficiency using a host of environmental variables. The results indicate that inefficiency averages 31% in 2010 and 28% in 2022, meaning that countries have reduced inefficiency by 3% over the period, mainly by middle-income countries, and could reduce it further. Economic complexity, financial development and trade openness are shown to be powerful efficiency enhancers, in contrast to natural resources rents. The benefits of private investment are inconclusive, while debt and FDI inflows are insignificant, indicating the complexity of the relationship between these factors and PSE, and highlighting the need for targeted development projects, better regulatory frameworks, and accountability mechanisms to reap their benefits.