Quality of Government and Living Standards: Adjusting for the Efficiency of Public Spending

July 1, 2012

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Francesco Grigoli, and Eduardo Ley. Quality of Government and Living Standards: Adjusting for the Efficiency of Public Spending, (USA: International Monetary Fund, 2012) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

It is generally acknowledged that the government’s output is difficult to define and its value is hard to measure. The practical solution, adopted by national accounts systems, is to equate output to input costs. However, several studies estimate significant inefficiencies in government activities (i.e., same output could be achieved with less inputs), implying that inputs are not a good approximation for outputs. If taken seriously, the next logical step is to purge from GDP the fraction of government inputs that is wasted. As differences in the quality of the public sector have a direct impact on citizens’ effective consumption of public and private goods and services, we must take them into account when computing a measure of living standards. We illustrate such a correction computing corrected per capita GDPs on the basis of two studies that estimate efficiency scores for several dimensions of government activities. We show that the correction could be significant, and rankings of living standards could be re-ordered as a result.

Subject: Economic sectors, Education, Expenditure, Health, Health care spending, National accounts, Public sector

Keywords: Efficiency, Efficiency score, GDP, GDP loss, GDP-per-capita ranking, Global, Health care spending, Input-output combination, Living standard, Living Standards, Output, Output value, Public Sector, System of National Accounts, Value, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/182
Stock No:

WPIEA2012182
ISBN:

9781475505306
ISSN:

1018-5941

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