GOVERNMENT SPENDING EFFICIENCY IN LATIN AMERICAN COUNTRIES

This dissertation analyses the public spending efficiency for 20 Latin American countries over the period 2000-2019. The main objective is to estimate efficiency scores per country by using the non-parametric method called Data Envelopment Analysis (DEA). DEA calculates efficiency scores based on the relationship between inputs and outputs. For the output measure, the Public Sector Performance composite indicator was calculated using annual panel data of socio-economic indicators. For the input measure was considered the Total Public Spending as percentage of GDP and by area, such as Public Spending on Health. At the end, a complete set of efficiency scores covering 20 countries between 2000 and 2019 was obtained. The results showed that public spending during the last 20 years increased but governments were not efficient. On the contrary, the scores reflect a large space for improvement during the period because values have worsened during the years. One of the findings is that during periods of global recessions governments of Latin America increased the spending but at the same time, their efficiency scores are worst. To have different perspectives three models were computed using DEA both input and output-oriented approaches. With the first model, the key conclusion is that on average governments could have used 27 percent less of spending to achieve the same levels of PSP, or the other way, governments could have increased their performance by 18 percent with the same level of spending. From model 2 the main result is that in health governments are far from being efficient, the average input efficiency score during the period is 40%, which means that 60% of the economic resources were not effective. Finally, model 3 focuses on Economic PSP, both input and output efficiency scores average around 60-80 percent. Interestingly results from model 3 also suggest that the most efficient countries, meaning located in the production efficiency frontier, were the ones with lowest levels of public spending among the 20 countries.