The effectiveness and efficiency of public spending

At a time when Member States have to deal with increased pressures on public balances, stemming from demographic trends and globalisation, the improvement of the efficiency and effectiveness of public spending features high on the political agenda. This paper shows that the efficiency in public services more generally and in public spending on education and R&D in particular varies significantly between countries. Clearly, there is potential for increased efficiency in public spending. The paper, however, also illustrates the difficulties of measuring efficiency and effectiveness. Progress has been made in developing the necessary measurement techniques, but there is a lack of suitable data to apply those techniques. Good quality data are needed because the techniques available to measure efficiency are sensitive to outliers and may be influenced by exogenous factors. Against this background, analyses based upon individual spending areas (function-by-function approach) seem to be a more promising approach to measure efficiency and effectiveness on a cross-country basis. In-depth analyses
of the areas in question allow for a better identification of meaningful indicators. As
efficiency improvements can be achieved in many different ways, a specific mix of short-,
medium- and long-term measures aimed at enhancing efficiency and ultimately effectiveness
could in principle be defined, which would be appropriate to the situation in the country under
consideration. However, making this possibility a reality would require further improvements
in the measurement of the efficiency and effectiveness of public spending.