Revisiting the determinants of local government performance

• This paper measures the efficiency of Portuguese local governments using non-parametric methods.
• A taxonomy for the operational environment of a generic DMU is suggested.
• The determinants of local government performance are analyzed.
• Several Tobit, OLS and double-bootstrap models were implemented.
• To be robust, performance evaluation models must take into account several exogenous variables.

Managing financial resources efficiently is a requirement for all levels of government. However, measuring the performance of governments or other public authorities is usually highly complex. The results of this type of assessment are likely to be biased or perverse. This study attempts to identify non-discretionary or exogenous variables that are associated with better/worse economic performance of local governments (the determinants of efficiency). Based on past research, the paper starts by providing a classification for the different types of determinants of local government performance. Afterwards, using data from all Portuguese municipalities, the relationship between a large number of factors and the efficiency scores is assessed. To accomplish this, several Tobit, OLS and double-bootstrap models were implemented. The efficiency scores are computed through non-parametric frontier methodologies. The results indicate that analysts must be prudent while interpreting the economic results achieved by each municipality. To be impartial and robust any performance evaluation model should (at least) consider the effects of the determinants of cost efficiency identified in this paper.