An application of the ELECTRE TRI‐C method to characterize government performance in OECD countries

• Author: Carlos Rodrigues Vieira,José Rui Figueira,Isabel Viegas Vieira,Ana Sara Costa
• Published date: 01 September 2019
• DOI: http://doi.org/10.1111/itor.12394
• Date: 01 September 2019

Intl. Trans. in Op. Res. 26 (2019) 1935–1955

DOI: 10.1111/itor.12394

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IN OPERATIONAL

RESEARCH

An application of the ELECTRE TRI-C method to

characterize government performance in OECD countries

Ana Sara Costaa,Jos

´

e Rui Figueiraa, Carlos Rodrigues Vieiraband

Isabel Viegas Vieirab

aCEG-IST,Department of Engineering and Management, Instituto Superior T´

ecnico, Universidade de Lisboa, Lisboa,

Portugal

bDepartment of Economics, CEFAGE– Universidade de ´

Evora, ´

Evora, Portugal

E-mail: impvv@uevora.pt [Vieira]

Received 15 May2016; received in revised form 14 October 2016; accepted 18 December 2016

Abstract

In the 2010 Toronto summit, the leaders of the G-20 countries agreed on the implementation of urgent fiscal

consolidation plans, following the expansionary policies adopted to curb the recessionary effects of the finan-

cial crisis. Unprecedented cuts in public expenditures have taken place, particularly in the European Union

periphery,reviving the discussion on the optimal size of the public sector. Supporters of fiscal restraint defend

that bigger governments tend to be more inefficient, its opponents assume that government size determines

the effectiveness of its performance. However, the social and economic impacts from contractionary fiscal

policies ultimately depend on the level of public sector efficiency. Relatively inefficient governments have

more scope to consolidate without compromising social welfare. In this paper, we adopt a multiple decision

aiding approach, not previously employed for the assessment of complex macroeconomic performances, and

employ the ELECTRE TRI-C outranking method to categorize OECD countries on a set of criteria rep-

resenting the quality of their public sectors. We then compare the obtained classifications with the share of

each government’s expenditures on GDP, to identify distinct levels of efficiency. Our analysis suggests that

various countries exhibit a margin for efficiency gains, attenuating the social and economic effects of fiscal

consolidation policies.

Keywords:decision analysis; decision support; government performance; ELECTRE TRI-C

1. Introduction

The financial crisis that began in 2007 has revived the longstanding debate on the optimal weight

of the public sector in the economy. To contain the recessive effects of the crisis, governments

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1936 A. S. Costa et al. / Intl. Trans. in Op. Res. 26 (2019) 1935–1955

worldwide implemented massive fiscal stimulus packages, with the share of public expenditures in

gross domestic product (GDP) rising to record levels in decades. Alarmed at mounting deficits

and debts, and hard-pressed by the financial markets, the leaders of the G-20 countries agreed in

2010 to implement rigorous fiscal consolidation plans, which would lead to unprecedented cuts in

public expenditures, especially in the European Union (EU) periphery. The balance of benefits and

costs from these fiscal consolidations ultimately depends on ideological preferences about the role

of the State. Proponents of a large public sector point to its vital role in reducing inequality and

promoting growth and stability, while its critics highlight issues of efficiency and individual choice.

However, ideological considerations apart, the social and economic impacts from fiscal contrac-

tionary policies depend also on how efficient the government has been. Relatively inefficient gov-

ernments have scope to consolidate without compromising the quality of their social and economic

indicators.

Evaluations and comparisons of overallgovernment efficiency across countries are thus of interest

for a wide variety of academics and policy makers, not to mention the ordinary citizens who voteand

pay taxes. But these studies are relativelyrare and have been developed utilizing methodological ap-

proaches thatcannot prevent undesirable compensatoryeffects between dimensions of governmental

action and do not take into account the diversity of personal preferences concerning the intensity

of governmental intervention. In this paper, we propose an effective way of tackling such problems

and, simultaneously, draw attention to potential benefits emerging from the methodological dia-

logue between macroeconomics and operational research. We assess the efficiency of Organization

for Economic Co-operation and Development (OECD) governments by developing an analysis in

two steps: first, we classify public sector performances across different areas of public intervention;

subsequently, we compare the obtained classifications with the share of each government spending

on GDP (the so-called size of the government),to identify distinct efficiency levels. In the first step,we

follow a multiple decision aiding approach, usually employed to solve problems of microeconomic

nature. We utilize the ELECTRE TRI-C method (Almeida-Dias et al., 2010), an outranking-based

technique of the ELECTRE family,to classify public sector performances on a set a socioeconomic

criteria.

The interest of our analysis is twofold: providing an original application of the ELECTRE

TRI-C method in a macroeconomic context and examining possible consequences of the fiscal

consolidation plans agreed in 2010. We ascertain whether better performances are solely attained

by bigger governments (and thus fiscal consolidation may have the cost of compromising gov-

ernments’ performances), or if some countries may still explore efficiency gains (in which case

decreases in government spending do not necessarily lead to a deterioration of government qual-

ity). We also address earlier research questions, related, for instance, with the possible existence

of maximum and minimum thresholds for the size of the government, above which further expen-

ditures do not improve performance, or below which no country attains the highest performance

patterns.

The study is organized as follows: the next section contextualizes the problem of public

sector performance and efficiency, revisiting the ideological and academic discussions on the

main role and optimal size of governments; Section 3 deals with methodological issues, de-

scribing the data used in the empirical application, justifying the suitability, and briefly pre-

senting the chosen method for the empirical assessment developed in Section 4; and Section 5

concludes.

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2017 The Authors.

International Transactionsin Operational Research C

2017 International Federation ofOperational Research Societies