The impact of government outsourcing on public spending: Evidence from European Union countries

Reducing public spending was a major objective when governments across Europe increasingly turned to outsourcing as a mode of public service provision from the 1980s. Today, despite its prevalence, there is still little consensus in the literature on whether outsourcing is an effective policy as regards reducing spending. Using a panel data model for 25 European countries over the period 1990-2011, this article tests whether outsourcing actually led to a reduction in public spending. Results indicate that outsourcing failed to reduce government expenditures at the central government level. This finding persists even after controlling for expenditure dynamics and addressing potential endogeneity issues.