Local territorial reform and regional spending efficiency

We investigate the effect of a local territorial reform, which reduced the number of parishes, on municipality spending efficiency in the period 2011-2016. We build a composite output indicator and use Data Envelopment Analysis (DEA) to compute efficiency scores, which we then analyze through a second stage regression with socio-demographic, economic factors and the reform. We find efficiency gains for around 10% of municipalities overall. In Alentejo and in Centro, more than 50% of the municipalities improved efficiency. The second stage results show that the reform did not improve local spending efficiency in Mainland Portugal, particularly in the Norte region.