Productive Efficiency of Public Expenditures: A Cross-State Study

Public productivity, in particular the efficiency of public expenditures, has been a subject of academic and nonacademic debate for a long time. A number of studies have been conducted over the years on the subject using mostly conventional statistical methods such as production functions and occasionally using techniques such as data envelopment analysis (DEA). Most of these studies were conducted at a microlevel using a single decision unit with limited data. This study uses a multistage DEA to analyze public productivity using panel data for all fifty states of the United States over a twenty-one–year period. Based on well-known Farrell’s technical efficiency, the study measures productivity using both constant and variable returns to scale. The results of the study show that there has been a general decrease in efficiency during the study period, with some exceptions, consistent with the growth trend in the national economy.