1.

A supposed causal link between transparency and good (or better) government can
operate at a number of levels, depending on what aspect of good (or better) government is being
considered.
At a very basic level, transparency is often seen as an essential factor for keeping
governments honest and for reducing the extent of government corruption. However, even within
this restricted focus, the notion of improving government performance through transparency can
be approached from a number of different perspectives. In the first place, the concept of
government transparency itself, like that of open government, has a number of connotations.
Alternatively, government performance may refer to the implementation of given policies
and the extent to which government agencies succeed in achieving the objectives set for
them.
2.
As seen in the previous subsection, the efficiency is an indicator that is obtained by
reporting the outcome effects to the efforts made. The efficiency of public expenses implies a
relation between the economical and social effects resulted from implementing a program and
the effort made to finance that program. The effectiveness is the indicator given by the ratio
between the result obtained and the one programmed to achieve.
Ulrike Mandl, Adriaan Dierx and Fabienne Ilzkovitz in the paper "The effectiveness and
efficiency of public spending" indicate that the efficiency and effectiveness analysis is based on
the relationship between the inputs (entries), the outputs (results) and the outcomes (effects).
3.
The efficiency of government spending has become one of the key issues in public
finance. In the advanced economies and many transition countries, higher efficiency of spending
seems to be the only way to avoid that public services are squeezed out between the opposing
forces of age-related expenditure and rising tax competition. government efficiency at the
aggregate level has thus become the subject of a rapidly growing literature, including key
contributions by Gupta and Verhoeven (2001), Tanzi and Schuknecht (1997, 2000), and Afonso
et al. (2005).
These studies typically measure public sector efficiency by relating government
expenditure to socio-economic indicators that are assumed to be targeted by public spending,
such as education enrolment ratios or infant mortality; the results of their cross-country
examinations suggest substantial efficiency differences between countries, irrespective of their
income level.
It is only logical that the more recent literature has started to examine the determinants of
these efficiency differences: Afonso and Aubyn (2006) examine the differences in the efficiency
of education spending in the OECD and find that income levels and parents education explain a
large part of the variation. Afonso et al. (2006) examine public sector efficiency in the new
member states of the European Union and conclude that security of property rights, income level,
competence of the civil service, and the populations education level affect efficiency.
4.
The efficiency of public spending is the subject of a rapidly growing literature. Tanzi
and Schuknecht (1997 and 2000) explore the benefits from public spending in industrial
countries. Gupta and Verhoeven (2001) evaluate education spending in Africa. Afonso,
Schuknecht, and Tanzi (2005) develop encompassing public sector performance and public
sector efficiency indicators and apply them to OECD countries. Afonso, Schuknecht, and Tanzi
(2006) examine spending efficiency in the new member states of the European Union. Herrera
and Pang (2005) explore the efficiency of public spending in a large set of developing countries.
Several country case studies, such as Mattina and Gunnarsson (2006), complement these cross-
country papers.
Putnam (1993) and Gellner (1994) have argued that the degree of development of civil society
influences the effectiveness of the public sector: cooperation between citizens and their
formation of nonstate institutions enables them to exert more effective control over politicians
and bureaucrats.
5.
Dictionary definitions of performance include such alternative terms as
accomplishment, achievement, realization, and fulfillment. Most of these terms have to
do with the objective effect of public actions; but some relate to the subjective sense of
satisfaction experienced as a result of ones action. Accordingly, performance may be defined in
terms of effort or in terms of results.
Benchmarking can yield additional benefits in the public sector by introducing a form of
competition into the sector. If the results are publicized and general recognition, promotions and
career opportunities of public sector managers are linked to the relative performance of their
offices, divisions or ministries as demonstrated by benchmarking, it can be a powerful force for
improvement in the public sector.
Therefore, the possibility of contracting out certain public services or functions should
rank near the top of the list of questions to be asked periodically in government organizations.
However, contractingout is only one market-related mechanism to improve efficiency and
effectiveness. It is dealt here at length because of the need for a full understanding of the uses
and limits of this mechanism in view of the increasing frequency of its introduction in
developing countries.
Many studies have aimed at estimating the effects of public expenditure on economic
growth. Empirical studies have yielded conflicting results: some support the hypothesis that a
rise in the share of public spending is associated with a decline in economic growth (Landau
(1986) and Scully (1989)); others have found that public spending is associated positively with
economic growth (Ram (1986)); and still other studies have found no significant relationship
(Kormendi and Meguire (1985) and Diamond (1989)). Public expenditures were observed in one
study to have no impact on growth in developed countries, but a positive impact in developing
countries (Sattar (1993)).
A number of studies have tested the effects of certain public expenditure components on
economic growth. In general, these studies suggest that public sector consumption does not
promote economic growth Barro (1991), Grossman (1990), and Easterly and Rebelo (1993)). A
number of studies have found a positive correlation between economic growth and various
education indicators or expenditures: primary and secondary levels of educational attainment
(Barro (1991) and Easterly and Rebelo (1993)); the share of expenditures on education in total
expenditure (Otani and Villanueva (1990)); and capital expenditures on education (Diamond
(1989)). Other studies suggest indirect links between education and economic growth, for
example, through the linkage between education expenditures and private investment (Clements
and Levy (1994)).
Other strands of research have aimed at identifying the effect of household investments in
education and health or public outlays on specific education and health services; these studies
have found, in general, robust results, indicating the positive effects of such investments on
lifetime earnings or educational and health indicators. These studies point to the productivity of
primary education and community health services, particularly in developing countries, as well
as health education and preventive health care expenditures (Ryoo (1988); Haddad and others
(1990); Winkler (1990); Atkin, Guilkey, Popkin, and others (1992); Jamison (1993);
Psacharopoulos (1993); and World Bank (1993b)).
8.
The pressure for improvements in public sector performance has mounted over time in
order to limit tax financing, to improve the public's trust in government, and to contribute to
overall productivity. In many countries this has led to reform movements with the aim of (a)
limiting government essentially to the provision of public goods and services and (b) introducing
new management concepts in the remaining public sector entities in order to adopt more
customeroriented attitudes, decentralise administration, deregulate unnecessary government
intervention, liberalise previous natural monopolies, and privatise state-owned enterprises.
Reforms in public administration are the most obvious area to improve government
performance. Main reform targets would be management practices, the budget process and
theuse of market mechanisms in the delivery of public services (Joumard et al., 2004).
Another prominent area of reform is the introduction of e-Government, defined as "the
use of information and communication technologies, and particularly the Internet, as a tool to
achieve better government" (OECD, 2003c).
Compared with traditional forms of communication between government and citizens,
the main advantages of e-Government are improvements in information, the saving of time and
the increase of the speed of response, the establishment of common standards across public
agencies, and the elimination of redundant systems. Once the Internet-based system functions
well, the quality of public services should improve significantly.
The fiscal policy is used as an important instrument for stimulating the economic growth
and for accomplishing other economic or social objectives. This can lead in some cases to an
increase in public expenditures which are higher than public revenues. In this case, the state
budget has deficit. But this deficit has to be covered somehow. One possible way is through
taxation increase, but this is a long term solution. Another way is through public debt, when the
state chooses to borrow money for covering the budget deficit. These loans imply an interest and
for the next year, the government has to pay back this money. The sources will be the public
revenues.