Assessing aggregate cost efficiency and the related policy implications for Greek local municipalities

The assessment of local government performance is a major issue for a number of industrial countries since local municipalities are assuming increasingly more responsibility in terms of providing essential services to their taxpayers. In fact, the decentralisation of decision-making from central governments to local municipalities has made the measurement and evaluation of their performance critical. In this paper, a two stage methodology is proposed as a comprehensive approach to measure the performance of local municipalities. During the first stage, efficiency performance is measured using mathematical programming and econometric frontier approaches. A second stage is proposed where the impact of policy making factors on the efficiency measures obtained from the first stage is evaluated. The policy implications of cost efficiency are investigated by grouping local municipalities within clusters of similar performance characteristics and also by identifying the determinants of their cost efficiency using censored regression models. The approach is implemented by studying the performance of Greek local municipalities.