Government spending in Italy - inefficiency vs. corruption

Oriana Bandiera, Andrea Prat, Tommaso Valletti , 21 April 2008

What determines how efficiently a certain public service is provided? The authors of CEPR DP6799 use a dataset of procurement prices paid by Italian public bodies to disentangle the effect of active waste (overpricing that benefits the decision-maker directly, like bribing) and passive waste (overpricing due to sheer inefficiency). The results indicate that passive waste accounts for 83% of the total estimated waste.

The authors analyse prices of 21 categories of standardised goods (e.g. paper, printers, etc…) paid by over 200 Italian public bodies in the period 2000-2005. In certain subperiods, the public bodies could only procure the goods independently; in others the goods were also available through a national procurement agency, Consip, which charged the same price to all public bodies.

Some public bodies appear to pay systematically more than others for the same type of goods. Observed differences are not related to geographical location but rather to the type of body, with the central administration paying on average 22% than health authorities and universities (local government is in between). The differences appear to be due to passive waste rather than active waste. The results suggest that sheer inefficiency is an important component of government waste. There is a risk that policy measures aimed at reducing corruption, like additional administrative hurdles or external controls, may increase passive waste.

DP6799 Active and Passive Waste in Government Spending: Evidence from a Policy Experiment

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URL: http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=6799.asp
Topics: Global governance
Tags: government spending, waste