More for less or less for more? Government spending efficiency in CESEE

Summary

Central, Eastern and Southeastern European (CESEE) governments have remained relatively lean by EU standards, but progress in government effectiveness has been uneven across CESEE countries. Our efficiency analysis suggests that the key challenge is not primarily how much governments are spending, but rather how effectively government spending is translated into governance outcomes. Strengthening administrative capacity and the quality of government spending therefore appears to be particularly important.

Highlights

CESEE governments: lean but unevenly effective
Public spending in CESEE has risen only moderately as a share of GDP since the 1990s, while governments have remained relatively lean by EU standards. Gains in effectiveness have been uneven, however, often curbed by weaknesses in infrastructure, competitiveness and human capital performance.

Spending efficiency gaps persist
CESEE’s input-based efficiency is now broadly in line with the rest of the EU, after having outperformed the latter in earlier periods. However, output-based efficiency still lags behind: Some progress was made; yet, not enough to close the sizeable gap. Relative convergence has largely stalled since 2012.

It is about spending better, not necessarily spending more
Many CESEE governments appear to operate below their optimal input scale, but extra spending alone would usually yield only limited gains in outcomes. The priority is to improve how spending is allocated, managed and implemented.