Literatura científica selecionada sobre o tema "Efficiency of public sector"

In recent years, the push for reform in the Australian public sector audit has placed the Office of the Auditor-General (hereafter OAG) in a more contestable or market- like environment, where the OAG is accountable for an efficient and effective provision of public sector audit. The purpose of this study is to compare the cost efficiency of in-house and contract-out arrangements to deliver financial audits in the public sector. It empirically tests whether there are audit cost and audit fee differences between in-house providers (i.e., the OAG) and contractors (i.e., public accounting firms). The secondary aims of this study are to develop audit cost and fee models for the public sector. The unit of analysis is audit cost/fee at the audit engagement level. The data for this study is collected for a sample of financial statement audit engagements for year-end 1998, at the state level in Western Australia. The data is extracted from publicly available and private sources. The audit cost and fee models are used to test for the cost differences between in- house providers and contractors. Prior audit production and audit fee studies in the private and public sectors provide the basis for the development of the two models. The results indicate that agency size, complexity and risk are positively associated with audit costs and audit fees. In addition, the total advice provided to the agencies by the OAG and agency type are also significantly associated with audit costs and audit fees. Overall, by incorporating these factors into the models, the audit cost model explains 82 percent of the variance in audit costs, while the audit fee model explains 86 percent of the variance in audit fees. More importantly, the main findings suggest that contract-out audits are more costly than in-house audits. However, this finding is conditional on agency type. Further analysis reveals that the type of audit arrangement is significantly associated with audit costs for the statutory authority audits only. There is no significant difference in audit costs between contract-out and in-house arrangement for hospital audits. This analysis shows that the statutory authority audits are driving the significance of the interaction between type of audit arrangement and agency type. Specifically, the costs of contract-out audits are, on average, significantly higher than in-house audits. This result is attributed to the contractor's lack of expertise in auditing statutory authority as there is no equivalent of this agency type in the private sector. As such, the OAG bas the greater advantage of delivering a lower audit cost for statutory authority audits compared to the contractors. However, the non-significant interaction term in the audit fee model suggests that cost differences between in-house and contract-out audits for the statutory authority audits are not reflected in audit fees billed to agencies. Further analyses, using audit hours as the dependent variable, generally corroborate the findings from the audit cost and audit fee models. Sensitivity analyses on the OAG's supervision costs reveal that these costs have a significant effect on the interpretation of the cost efficiency results. By excluding supervision costs from contract-out audits, there are significant changes in the results for the total sample and the two sub-samples (partitioned by agency type). Generally, these changes favour the contract-out audits for all groupings, where contract-out audits are now more cost efficient than in-house audits for hospitals, and not significantly different in costs for statutory authority audits. Additional tests to investigate the determinants of the GAG's supervision costs in contract-out audits reveal that agency size, risk, reliance on internal control, total advice provided by the OAG and packaged audits (a single contract for two or more audits) are significantly associated with the supervision costs of contract-out audits. The main contribution of this study is to add to the growing literature on audit market efficiency (see Dopuch, Gupta, Simunic & Stein, 2000; Knechel & Payne, forthcoming). It provides evidence on the production function of different type of suppliers in the public sector and their relative efficiency in providing audit services. This study contributes to the recent discussions on the changing nature of public sector audit market towards a market-based provision of public sector audits. The evidence from this study allows researchers and policy-makers to compare the two types of audit arrangement to undertake public sector audits. In pan, this study also contributes to the line of inquiry that examines the difference between government auditors and public accounting firms in US municipalities (Copley, 1989; Dwyer & Wilson, 1989; Rubin, 1992). The secondary contribution of this study is to develop and test the audit cost and fee models in the public sector and provide validity on the transferability of audit models from the private and public sectors. This study adds to the literature that examines the public sector audit market. More importantly, it is one of the few non-US studies that examine the public sector audit market and the findings from this study suggest that the public sector audit studies from the US are generalisable to Australia. These findings add to our understanding of the range of market conditions under which it is so far known to hold.

Face aux défis fiscaux récents et à la nécessité croissante de fournir davantage de biens et services publics, notamment en réponse aux baisses de revenus subies par la population suite à la crise financière de 2008 et à la pandémie de COVID-19, cette thèse aborde de manière approfondie le rôle essentiel des facteurs financiers, tels que le développement financier, dans l'orientation de la politique budgétaire. Elle analyse les mécanismes par lesquels les pays développés et en développement peuvent efficacement allouer les ressources publiques pour le développement, en se basant sur des méthodes statistiques et économétriques, et elle propose des recommandations de politiques économiques pour les économies en développement.Dans le Chapitre 1, nous contribuons à la littérature sur l'efficience du secteur public en utilisant un vaste ensemble de données de 1990 à 2017. Nous calculons les scores d'efficience pour divers secteurs, révélant des corrélations positives avec la mondialisation, la productivité et la qualité institutionnelle. L'analyse Tobit montre des impacts constants à travers les économies, avec des recettes fiscales affectant négativement l'efficience dans les économies avancées. L'étude suggère de mettre l'accent sur les avantages de la mondialisation, de promouvoir la productivité et d'améliorer la qualité institutionnelle pour une gestion efficiente. Elle souligne l'importance de la gouvernance fiscale et propose des pistes de recherche futures sur les retombées de l'efficacité gouvernementale et sur l'impact des réformes fiscales. Nous examinons, dans le Chapitre 2, l'impact du développement financier dans l'amélioration de l'efficience du secteur public à l'échelle mondiale. Des scores d'efficience sont calculés pour 158 pays de 1990 à 2017, révélant un lien positif entre le développement financier et l'efficience des dépenses publiques. Les vérifications de robustesse confirment ces résultats et explorent les canaux par lesquels le développement financier influence l'efficience, en mettant en avant l'importance de la stabilité financière pour atténuer la volatilité fiscale. Les implications politiques recommandent des réformes structurelles pour favoriser le développement financier, offrant ainsi des opportunités d'amélioration sociale dans les pays en développement. Dans le Chapitre 3, nous explorons de manière approfondie l'impact du développement du secteur financier sur la mobilisation des recettes fiscales intérieures dans 49 pays en développement sur la période de 1995 à 2017. Nous mettons en évidence une relation positive, plus robuste, avec les recettes fiscales non liées aux ressources, particulièrement prononcée dans les pays à faible revenu avec une grande ouverture financière et une faible dette publique. L'analyse identifie l'influence significative de divers aspects du développement financier, tels que les marchés financiers, les institutions, la profondeur, l'accès et l'efficacité, sur la mobilisation fiscale. Les recommandations politiques insistent sur l'importance de combiner le développement financier avec des politiques fiscales ou monétaires saines, surtout dans les contextes ouverts et financièrement développés, pour maximiser son impact sur la mobilisation des recettes fiscales et le bien-être social global. Nous étudions dans le Chapitre 4, l'impact de l'accès aux marchés financiers sur l'instabilité des recettes fiscales dans les pays en développement en utilisant des données de 30 pays de 1996 à 2020. L'utilisation de l'estimateur GMM-système révèle une relation de causalité entre cette instabilité et la notation souveraine ainsi que les spreads obligataires. Les implications théoriques mettent en avant l'importance de l'accès aux marchés financiers pour atténuer cette volatilité des recettes fiscales, suggérant que des réformes favorisant le développement financier pourraient améliorer l'efficacité des politiques fiscales dans ces pays<br>Given the recent fiscal challenges and the growing need to provide more public goods and services, especially in response to income reductions following the 2008 financial crisis and the COVID-19 pandemic, this thesis thoroughly examines the crucial role of economic factors, such as financial development, in shaping fiscal policy. It utilizes statistical and econometric methods to analyze mechanisms through which developed and developing countries can efficiently allocate public resources for development and offers policy recommendations for developing economies. In Chapter 1, we contribute to the literature on public sector efficiency using a comprehensive dataset spanning from 1990 to 2017. We compute efficiency scores for various sectors, revealing positive correlations with globalization, productivity, and institutional quality. Tobit analysis shows consistent impacts across economies, with tax revenues negatively affecting efficiency in advanced economies. The study suggests emphasizing globalization benefits, promoting productivity, and enhancing institutional quality for efficient management. It underscores the importance of fiscal governance and proposes future research avenues on government efficiency and the impact of fiscal reforms. In Chapter 2, we investigate the impact of financial development on public sector efficiency globally. Efficiency scores are computed for 158 countries from 1990 to 2017, revealing a positive link between financial development and public expenditure efficiency. Robustness checks confirm these results and explore the channels through which financial development influences efficiency. We emphasize the importance of financial stability in mitigating fiscal volatility. Policy implications recommend structural reforms to promote financial development, offering opportunities for social improvement in developing countries. Chapter 3 delves deeply into the impact of financial sector development on domestic tax revenue mobilization in 49 developing countries from 1995 to 2017. We highlight a more robust positive relationship with non-resource tax revenues, particularly in low-income countries with high financial openness and low public debt. The analysis identifies the significant influence of various aspects of financial development on tax mobilization. Policy recommendations stress the importance of combining financial development with sound fiscal or monetary policies, especially in open and financially developed contexts, to maximize its impact on tax revenue mobilization and overall social welfare. In Chapter 4, we examine the impact of financial market access on tax revenue instability in developing countries using data from 30 countries from 1996 to 2020. Employing the GMM-system estimator reveals a causal relationship between this instability and sovereign rating and bond spreads. Theoretical implications highlight the importance of financial market access in mitigating tax revenue volatility, suggesting that reforms promoting financial development could enhance the effectiveness of fiscal policies in these countries

Traditional efficiency measures have two significant drawbacks. Firstly, they fail to recognise that output is the result of all inputs operating in combination; thus output per head is a misleading indicator of intrinsic labour productivity. Secondly, they have often been defined in terms of average levels of performance in least squares production functions. In practice, average performance norms may institutionalise some level of inefficiency. The first of these problems may be overcome in a total-factor view of efficiency. This implies the extension of traditional ratio measures to include all inputs and outputs simultaneously. The second requires the comparison of performance with frontier possibilities. Both of these improvements are embodied in Data Envelopment Analysis (DEA). Two applications of DEA are undertaken on U. K. public sector data. The first of these defines frontier efficiency in local education authorities (LEAs). It develops an 8 variable model with 3 outputs (based on exam pass rates) and 5 inputs. Four of the inputs are uncontrollable background variables allowing for differences in student catchment area; the fifth, teaching expenditure, is under LEA control and can be targeted. The results suggest that 44 authorities are best-practice and at the remainder spending per pupil could have been reduced by an average of 6.8%. These results are replicated on smaller clusters of LEAs to examine the sensitivity of DEA to the size of the performance comparison. The clustering procedure produces marked effects on targets, peer groups and the efficiency status of certain authorities. A second case study investigates the performance of a sample of 33 prisons with a high remand population. The model separately identifies the effects of remand prisoners on costs, and includes separate variables to reflect the levels of overcrowding and offences. In 1984/85 the combined budget of these prisons was overspent by 4.6% vis a vis best-practice costs. Using an alternative constant returns technology this overspend rises to 13.1%. Two aspects of DEA targets are explored. A model of Leibenstein's inert area suggests reasons for the persistence of inefficiency and hence that targets may be unattainable without coercion. Secondly, the literature has justified the recommendation of DEA targets in their being Pareto efficient. This interpretation is disputed and an alternative DEA-Dominance criterion is proposed as a more appropriate basis for targeting.

Mestrado em Economia Monetária e Financeira<br>Being allocated a large share of a country's GDP to the public spending, would rise the question of whether these resources are distributed and allocated in an efficient manner that leads the country to go through the growth enhancing economic path or not. This study is mainly going to follow Afonso, Schuknecht, and Tanzi (2005), aiming to look at the public expenditure of 20 OECD countries for the period 2009-2013, from the perspective of efficiency and assess if these developed countries are performing efficiently compared to each other. In order to evaluate the efficiency scores, Public Sector Performance (PSP) and Public Sector Efficiency (PSE) indicators were constructed and Data Envelopment Analysis was conducted. The results of these analyses show that the only country that performed on the efficiency frontier is Switzerland. The average input-oriented efficiency score is equal to 0.732. That is, on average countries could have reduced the level of public expenditure by 26.8% and still achieved the same level of public performance. The average output-oriented efficiency score is 0.769 denoting that on average the sample countries could have increased their performance by 23.1% by employing the same level of public expenditure.

Grenada is 1 of 15 developing countries in Caribbean Community known as CARICOM. The infrastructure capital projects in these developing countries are plagued with an array of issues: unethical practices, inadequate supervision, lack of transparency and accountability, inadequate monitoring and evaluation, cost overruns, and inefficiencies. In the 1980s and 1990s, the International Monitory Fund and World Bank introduced a balanced scorecard engineered under the structural adjustment program, but it was unable to improve infrastructure project efficiencies. This qualitative case study sought to understand the role of management key performance indicators (KPIs) on public sector infrastructure capital project efficiency on the island of Grenada. An institutional assessment and development framework and a classical management theoretical framework methodology were used to explore the effects of management KPIs on public sector infrastructure capital projects efficiencies in developing countries. The research incorporated a constructivist philosophy that underpins the evaluation and perception of the government, the National Water and Sewerage Authority (NAWASA), project teams, systems, and stakeholders. A purposive sampling strategy with elements of snowballing was used to obtain 12 representative participants for interviews, and a systematic approach of transcribing, coding, and thematic analysis was done. Findings indicate inadequacies in the BSC performance measure system on infrastructure projects, which justifies the use of comprehensive management KPIs. Positive social change implications of this study include recommendations for comprehensive management KPIs and policies to improve public sector infrastructure project efficiency in Grenada.

Thesis (MBA (Business Management))--Stellenbosch University, 2008.<br>ENGLISH ABSTRACT: The aim of this research report was to identify a set of strategic tools that can be transferred from the private health sector to the public health sector, to improve efficiency in the public health sector. To attain to this aim, this research report attempted to identify the selected best practices employed by successful private health providers, to determine the most effective modes to transfer these best practices, and to establish key success factors for the identified best practices. Interviews were conducted with opinion-leaders from the health industry in the Western Cape,and inputs gleaned from these individuals were useful in applying the strategic model to the public and private health sector in the Western Cape. Globally the public sector has already embarked on strategic management initiatives, through the implementation of the New Public Management-model. The introduction of NPM in a few selected countries aimed at achieving cost-efficiency, budget accountability and improved customer focus in service delivery. South Africa however still needs a unifying and all encompassing vision for public and development management to advance the ideals of Batho Pele. The use of evidence and the management of intellectual capital in the health care industry are recognised as important in decision-making. The health care trends of five selected countries (United Kingdom, United States of America, Greece, Canada, Slovakia) were researched , and demonstrated that countries face similar challenges (increasing resource demands, aging population, rapidly expanding technological possibilities, better-informed patients, rising expectations). It is recognised that business skills and knowledge, as well as investments in IT can be effective tools in moving an organisation from a reactive approach to a pro-active approach. Managers in the public sector need different competencies than managers in the private sector due to the differences between the two sectors, and thus there is a need to adapt management training. While there are examples of best practices in the South African government, there is still room for improvement. A stable political economy, political leadership, management skills of political office-bearers and the professionalism of civil servants will be decisive in this regard. The White Paper on the Transformation of the Public Service provides a framework for the development of strategies to promote continuous performance improvements in quantity, quality and equity of health service provision. The areas where improvements are necessary are customer and stakeholder satisfaction, processes, organisation results, leadership and people management. The comparison between the current strategic approach in the Western Cape and a model designed for the public sector revealed that some of the steps can be developed further, namely the assessment of the internal and external environments, the development of an effective implementation process, and the reassessment of the strategies and the strategic planning process. The comparison between the current strategic approach in the Western Cape and the global best practices framework established that there is not sufficient balance between the resource and position based views, the decision-making approach is "quite formal", implementation of strategy is not a carefully planned change management process, planning is regarded as the most important part of the strategic planning process, and evaluating strategy implementation involves more than mere financial measures. It was also established that the Western Cape Department of Health's strategic stance is offensive, that it can be regarded as a prospector, that managing multiple stakeholders is a challenge and that the competitive advantage of the department is its people. The industry analysis revealed that there is still a long way to go in terms of reliable information systems to support health services. The need for a strategic approach that can respond rapidly in a turbulent environment, and the re-look strategic processes to ensure delivery of quality health care through optimal use of resources were also established by the industry analysis. It was established that a gap exists in the public health sector in respect of the strategic planning processes, and that the private health sector portrays characteristics compatible with the global best practices framework. Modes for the successful transfer of best practices were explored, namely management consulting, commercialisation and management development. Two key success factors for the transfer of best practices were identified, namely the application of the Batho Pele principles, and the recruitment and retention of suitably qualified staff. From a global strategic management perspective, it was clear that there is a definite need for the public sector to change to private sector strategic approaches. A shift from a reactive to a pro-active approach is also advisable. The global trends in public health care demonstrate the importance of political leadership, competent management, business knowledge and skills, IT investment and the use of evidence in health. It is clear that the provision of public health care in South Africa faces similar challenges to those experienced by the five countries researched. The application of the global best practices framework confirmed that there are in fact best practices employed by the private sector that can be transferred to the public sector. Most of the best practices discussed in this research report are not employed in the public sector, or only on a limited scale. The use of these practices should be explored by the public sector. In order to equip managers in the public sector with the necessary strategic management tools, training and development opportunities must include modules on strategic management.<br>AFRIKAANSE OPSOMMING: Die doel van hierdie navorsingsverslag was om 'n stel strategiese benaderings te identifiseer wat van die privaat-gesondheidsektor na die openbare gesondheidsektor oorgedra kan word, om effektiwiteit in die publieke gesondheidsektor te verbeter. Ten einde hierdie doel te bereik, was daar gepoog om geselekteerde beste praktyke wat deur die privaat gesondheidsektor gebruik word te identifiseer, om te bepaal wat die mees effektiewe metodes sou wees om dit oor te dra, en om kritiese suksesfaktore vir die bepaalde beste praktyke te identifiseer. Onderhoude is gevoer met prominente leiers in die gesondheids-industrie in die Wes-Kaap, en hierdie insette was waardevol in die toepassing van die strategiese model op die publieke en privaat-gesondheidsektor in die Wes-Kaap. Op die internasionale front het die publieke sektor reeds strategiese bestuurs-inisiatiewe begin toepas, deur die implementering van die NPM-model. Die implementering van NPM in 'n paar geselekteerde lande was gemik op koste-effektiwiteit, begrotingsverantwoordbaarheid en verbeterde fokus op kliente in dienslewering. Suid Afrika het egter steeds die behoefte aan 'n oorkoepelende, verenigende visie vir publieke- en bestuursontwikkeling om uitvoering te gee aan die ideale van Batho Pele. Die gebruik van uitkomste en die bestuur van intellektuele kapitaal in die gesondheidsindustrie word erken as belangrik vir besluitneming. Die neigings in gesondheidsorg van vyf gekose lande (Verenigde Koninkryke, Verenigde State van Amerika, Griekeland, Kanada en Siovakye) toon dat die uitdagings vir gesondheid ooreenstem (verhoogde vraag na hulpbronne, verouderende bevolking, vinnige ontwikkeling van tegnologie, beter ingeligte pasiente, hoër verwagtinge). Dit word aanvaar dat besigheidsvaardighede en -kennis, sowel as beleggings in inligtingstegnologie effektief aangewend kan word om 'n organisasie van 'n reaktiewe tot 'n pro-aktiewe benadering te beweeg. Bestuurders in die publieke sektor benodig vaardighede wat verskil van bestuurders in die privaatsektor weens verskille tussen die twee sektore; daar is dus 'n behoefte om bestuursopleiding aan te pas. Daar is wel voorbeelde van beste praktyke in die Suid-Afrikaanse regering, maar daar is steeds ruimte vir verbetering. 'n Stabiele politieke ekonomie, politieke leierskap, bestuursvaardighede van politieke ampsdraers en die professionaliteit van staatsamptenare sal deurslaggewend wees in hierdie verband. Die Wit Skrif oor Transformasie van die Openbare Sektor verskaf 'n raamwerk vir die ontwikkeling van strategiee om voortgesette verbeteringe in hoeveelheid, kwaliteit, en gelykheid in die voorsiening van gesondheidsorg te bevorder. Areas vir verbetering sluit in kliente en belanghebbende tevredenheid, prosesse, organisatoriese uitslae, leierskap en bestuur van mense. Die vergelyking van die huidige strategiese benadering in die Wes-Kaap met 'n model wat ontwikkel is vir die publieke sektor toon dat sommige van die stappe verder ontwikkel kan word, naamlik die evaluering van die interne en eksterne omgewing, die ontwikkeling van effektiewe implementeringsprosesse, en die herevaluering van die strategiee en die strategiese beplanningsprooes. Die vergelyking van die huidige strategiese benadering in die Wes-Kaap met die globale beste praktyke raamwerk toon dat daar nie genoeg balans is tussen die posisie- en hulpbrongebaseerde stand nie, dat besluitneming "nogal formeel" is, dat implementering van strategie nie 'n sorgvuldig beplande veranderingsbestuursproses is nie, en dat evaluering van implementering meer behels as slegs finansiele maatstawwe. Dit het ook aan die lig gekom dat die Wes-Kaap departement van gesondheid 'n offensiewe stand het, dat dit as 'n prospektor beskou kan word, en dat die bestuur van veelvuldige belangehebbendes 'n uitdaging is. Die analise van die industrie het getoon dat daar nog baie gedoen kan word in terme van betroubare inligtingstelsels om gesondheidsdienste te ondersteun. Die behoefte aan 'n strategiese benadering om vinnig te reageer in 'n turbulente omgewing, en die her-evaluering van strategiese prosesse om die lewering van kwaliteit gesondheidsdienste deur die optimale gebruik van hulpbronne te verseker, is ook bevind in die analise. Daar is ook bevind dat daar 'n gaping in die publieke gesondheidsektor is wat die strategiese beplanningsproses betref, en dat die privaat-gesondheidsektor kenmerke openbaar wat verenigbaar is met die globale beste praktyke raamwerk. Metodes vir die suksesvolle oordrag van beste praktyke, naamlik bestuurskonsultasie, kommersialisasie en bestuursontwikkeling word beskryf. Twee sleutelsuksesfaktore vir die oordrag van beste praktyke, naamlik die toepassing van die Batho Pele beginsels, en die werwing en behoud van toepaslik gekwalifiseerde personeel is identifiseer. Uit 'n globale strategiese bestuursperspektief was dit duidelik dat daar definitief 'n behoefte is vir die publieke sektor om privaatsektor strategiese benaderings aan te neem. 'n Beweging van 'n reaktiewe tot 'n pro-aktiewe benadering is beslis aan te beveel. Die globale neigings in publieke gesondheidsorg demonstreer die belangrikheid van politieke leierskap, bevoegde bestuur, besigheidskennis en -vaardighede, beleggings in inligtingstegnologie en die gebruik van uitkoms-gebaseerde bewyse. Dit is duidelik dat die voorsiening van publieke gesondheidsorg in Suid-Afrika ooreenstemmende uitdagings het met die vyf lande wat ondersoek is. Die toepassing van die globale beste praktyke raamwerk het bevestig dat daar wel beste praktyke gebruik word deur die privaatsektor, wat oorgedra kan word na die publieke sektor. Meeste van die beste praktyke hier bespreek word nie deur die publieke sektor gebruik nie, of slegs op 'n beperkte basis. Die gebruik van hierdie praktyke moet ondersoek word deur die publieke sektor. Om bestuurders in die publieke sektor toe te rus met die nodige strategiese bestuursvaardighede, moet opleidings- en ontwikkelingsgeleenthede modules insluit oor strategiese bestuur.

With the increased demand for doing more with less, public sector managers embrace outsourcing back-office functions through a shared service model; however, maintaining service quality for public sector shared service centers (SSC) in financial management during peak cycles is a challenge. Framed with the transaction cost economy theory, the purpose of this single case study was to explore strategies used by SSC managers in a public sector company to maintain service quality. Seven participants with more than 4 years of SSC experience in public-sector companies participated in phone interviews including SSC department heads, managers, and a supervisor of a public-sector company in Mississippi who implemented strategies to successfully maintain service quality in the SSC relationship. Through method triangulation, a review of service level agreements and key performance indicators supplemented open-ended semistructured interviews. The research findings included emergent themes of training and documentation, employee engagement, control and communication, efficiency and automation, and standardization and metrics. The SSC strategies in training and documentation, control and communication, and employee engagement were fundamental for maintaining service quality in SSC relationship. Study findings may help public sector SSC managers understand how to incorporate and implement successful strategies in financial management divisions to maintain service quality. Positive social change includes identifying methods to increased efficiency and service quality in a financial management division. Society could benefit from improvements in employee work-life balance, reduced turnover, and increases in the economic well-being of community residents.

This thesis investigates public sector efficiency (PSE) of decentralized local governments in Indonesia. Based on the literature review improved efficiency is considered as the main outcome expected from a decentralized system of public service provision. Hence analysing public sector efficiency provides the de facto measure of the ability of decentralized local government in internalizing the benefits of fiscal and political decentralization. In order to identify the significance of the effect of 2004 electoral contest, the first democratic election in the decentralized Indonesia, efficiency in the public sector is investigated in a period from 2005 to 2008. The 2004 electoral contest is considered as an important phase of democratization and decentralization in Indonesia as it was the first election where voters directly chose leaders at every level of government. Political and institutional features which emerged as a result of the 2004 election were expected to have an impact on a decentralized system of public service provision.This thesis employs a two-stage method. In the first stage, non-parametric data envelopment analysis (DEA) is used to generate the efficiency scores of all local governments. Several outcome indicators in the education and health sectors, infrastructure, poverty mitigation as well as macroeconomic performance are taken as a measure of the flow of services that arise from public spending. Hence, public sector efficiency is defined as the flow of services per unit expenditure.The second stage of the method aims to investigate public sector efficiency against non-discretionary variables involving a measure of fiscal decentralization, political and institutional variables, as well as total factor productivity growth as a control variable. In order to do so, this thesis employs an econometric analysis using fixed effect vector decomposition (FEVD). The FEVD is adopted as the political and institutional variables are characterised as time-invariant variables.In the first stage of the method, the DEA estimate reveals that public sector efficiency scores vary across local governments, corroborating the general pattern of the regional disparity in Indonesia. That is, poorly developed regions have relatively inefficient governments. The DEA calculation locates local governments on Java Island at the frontier indicating that these local governments are benchmarking others. On the other hand, Papua and Papua Barat emerge with the lowest efficiency score over the observation period with a large divergence from the frontier. The results also show that the average and the median efficiency scores are drifting downwards, while the distance from the lowest score to the frontier is increasing. This indicates that the regional disparity in the public sector efficiency was increasing over the observation period.The second stage of the method reveals that the ability of a decentralized local government to generate local own-revenue is significant in improving public sector efficiency. The estimation results show that the degree of fiscal decentralization as measured by the ratio of local own-revenue to total public spending has a significant positive impact on the PSE. However, given that the growth of total factor productivity also has a significant and positive impact on the PSE, the result should be seen as a caution that improved PSE might result from overall total productivity in the economy. A local jurisdiction that has higher total factor productivity will present greater public sector efficiency regardless the degree of fiscal decentralization.The second stage estimate also reveals that the formation of the new government as an outcome of the first electoral democracy in the decentralized Indonesia has nothing to do with the PSE improvement. The lost hegemony of Golkar in the decentralized democratized Indonesia, measured as the ratio of seats held by Golkar to total seats in the local assembly, does not show any significant impact on the PSE. The first electoral democracy might have resulted in a new democratic government in Indonesia; however, the new democratic government might be merely a continuation of an old structure with new rules on the limits of democratization. Accordingly, the new democratic government did not impact on improved efficiency in the public sector.Another significant feature of the formation of the new government in the decentralized democratized Indonesia is the rebirth of politik aliran (political parties rooted to a particular socio-ideology). Politik aliran is represented by Islamic based political parties. These parties held a significant number of seats in the legislative councils. The estimation results reveal a negative association between political Islam and PSE, even when PKB (Nation Awakening Party) and PAN (National Mandatory Party) are included in the measure. Both parties do not set Islam as their platform, but affiliate to NU (Nahdlatul Ulama) and Muhammdiyah, the two largest socio-religious organizations in Indonesia. The result may also stand as a confirmation that patron-client affiliation in Indonesia’s electoral democracy fails to leverage accountability and hence fails to result in improved PSE.The second stage estimate finds evidence that democratic participation did not have an impact on the PSE. This contradicts the general representation claiming that greater democratic participation is associated with better economic performance. The estimates reveal a negative impact of democratic participation on the PSE. In the setting of politik aliran, the coefficient estimate is statistically significant. It implies that while political Islam may have increased electoral participation, the participation has nothing to do with improved PSE. This may not be surprising in the case of electoral democracy in Indonesia where electoral participation is characterised by money politics, patron-client political relationship and unbalanced electoral participation.Many parties flourish in the decentralized democratized Indonesia escalating political fragmentation. Using a Herfindahl-Hirschman index as a measure of the size-political fragmentation this study finds evidence that while citizens may have more options to select parties/politicians to best represent their preferences, higher political fragmentation shows ambiguous impact on PSE.The quality of institutional governance and its impact on PSE is represented by a corruption perception index and an infrastructure perception index. The estimation results reveal evidence that public sector efficiency is positively associated with the infrastructure perception index, but fail to find evidence of an effect for the corruption perception index. This indicates that the outcome of decentralization is not contingent with a perception about corruption as it is prevalent in the decentralized Indonesia. It occurs almost in all levels of government and institutions. Thus if decentralization results in improved efficiency, it is not due to a corruption lessening but rather due to variations in the level of infrastructure.