Devolution Dynamics of Spanish Local Government

Over the last few years, there has been a devolutionary tendency in many developed and developing countries. In this paper we propose a methodology to decompose whether the benefits in terms of efficiency derived from transfers of powers from higher to municipal levels of government (the ‘economic dividend’ of devolution) might increase over time. This methodology is based on linear programming approaches for efficiency measurement. We provide an application to Spanish municipalities, which have had to adapt to the European Stability and Growth Pact as well as to domestic regulation seeking local governments' balanced budget. Results indicate that efficiency gains from enhanced decentralization have increased over time. However, the ways in which these gains accrue differ across municipalities—in some cases technical change is the main component, whereas in others catching up dominates.