The macroeconomic effects of public sector efficiency in advanced economies

This paper computes public sector efficiency scores in a group of 30 advanced economies from 2000 to 2021. Next, it examines by means of the local projection method the short- to medium-term effects of public sector efficiency on the debt ratio, productivity, and private investment. We find that an increase in public sector efficiency lowers public debt and enhances its medium-term sustainability. It also significantly increases labor productivity and private investment. The results remain valid after several robustness checks have been performed. • We examine the medium-term effects of public sector efficiency on fiscal sustainability, productivity and private investment • We find that a more efficient public sector promotes expenditure saving as it reduces the public debt ratio in the medium-term • Furthermore, improved public sector efficiency results in a significant increase in labor productivity and private investment