Series: Working Papers. 1939.
Author: Mar Delgado-Téllez, Enrique Moral-Benito and Javier J. Pérez.
Published in: Regional Studies, Volume 56, Issue 8, 2022, pp 1347-1358
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Abstract
Outsourcing can be defined as the delivery of public services by the private sector. The sign
of the effect of outsourcing on public spending is ambiguous ex-ante. While outsourcing
may reduce public spending through higher competition in the private sector, it may also
increase public spending due to the presence of transaction costs or the so-called “hold-up”
problem among others. Using a panel of Spanish regions over the 2002-2018 period, this
paper explores the association between outsourcing and public spending empirically. Spain
offers an interesting case study from a broad perspective, as the degree of decentralization of
public health and education is almost complete, and the different regions have adopted quite
distinct approaches as regards the public-private mix in the provision of these public services.
In line with previous cross-country evidence [e.g. Alonso et al. (2017); Potrafke (2018)] our
estimates point to a positive relationship between public spending and outsourcing. The result
holds when a number of robustness exercises are carried out. By components, we find that
outsourcing is associated with higher public consumption and health spending, while there is
no statistical association with investment and education expenditure. In any case, it is worth
mentioning that the impact of outsourcing on the efficiency of public spending cannot be
ascertained with our approach, due to data limitations.