Efficiency of Public Spending: Azerbaijan, Kazakhstan and Russia

Revenue Watch is examining the efficiency of public spending on health, education and social protection in the former Soviet republics of Azerbaijan, Kazakhstan and Russia. These sectors are central to the improvement of living standards and the acceleration of economic growth in the post-Communist region.

Over the past few years, rising world prices for oil and natural gas have provided a major economic boost for the resource-rich countries of the former Soviet Union. These countries have started to record exceptionally high growth rates, after years of negative growth during the first half of the 1990s. Rising oil and gas prices have generated enormous fiscal revenues and a significant portion of these funds has been spent to improve the social sector, but higher spending alone cannot produce positive social outcomes without substantial improvements in the efficiency of public services.

Rather than focusing on country-level differences in government spending, RWI's current research seeks to identify the influences on variations in spending efficiency at the sub-national level. A preliminary analysis suggests variations in the efficiency of government spending across administrative units in the selected countries.

A better understanding of the determinants of local government expenditure efficiency can help to guide improvements to public sector performance at the national level.

This study measures the efficiency of public spending as a difference between the actual spending and the theoretically possible minimum spending sufficient to produce the same level of actual output. Efficiency measures are computed by comparing the government expenditures for related services and the actual outcomes. This process involves estimation of efficiency frontiers using data envelopment analysis (DEA), a non-parametric method that identifies the source of inefficiencies in the allocation of public funds. Our research aims to offer policy options to improve the efficiency of public spending at both the national and the sub-national level.