Long- and short-term cost efficiency frontier evaluation: Evidence from Spanish local governments

This paper analyses the efficiency of Spanish local governments using non-convex frontier methods. More specifically, it analyses the total cost inefficiency and proposes its decomposition into three additive components: short-term variable cost inefficiency; capacity utilisation of fixed inputs; and scale inefficiency. The second and third components correspond to the long-term cost efficiency notion. The proposition is applied to a sample of Spanish municipal councils (municipalities with over 2,000 inhabitants located in Catalonia, the Spanish north-eastern region). The results confirm the existence of significant cost inefficiency coefficients related to both the long and short term. © 2007 Institute for Fiscal Studies.