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Quality of Government and Living Standards: Adjusting for the Efficiency of Public Spending
Author:
Mr. Francesco Grigoli
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Mr. Eduardo Ley
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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 182
Language:
English
Publication Date:
01 Jul 2012
DOI:
https://doi.org/10.5089/9781475505306.001
ISBN:
9781475505306
ISSN:
1018-5941
Pages:
21
Keywords:
WP; GDP; value; living standard; output; System of National Accounts; Efficiency; Living Standards; Public Sector; GDP loss; GDP-per-capita ranking; efficiency score; output value; input-output combination; Health care spending; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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It is generally acknowledged that the government’s output is difficult to define and its value is hard to measure. The practical solution, adopted by national accounts systems, is to equate output to input costs. However, several studies estimate significant inefficiencies in government activities (i.e., same output could be achieved with less inputs), implying that inputs are not a good approximation for outputs. If taken seriously, the next logical step is to purge from GDP the fraction of government inputs that is wasted. As differences in the quality of the public sector have a direct impact on citizens’ effective consumption of public and private goods and services, we must take them into account when computing a measure of living standards. We illustrate such a correction computing corrected per capita GDPs on the basis of two studies that estimate efficiency scores for several dimensions of government activities. We show that the correction could be significant, and rankings of living standards could be re-ordered as a result.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund