ENTR A5
STUDY FACTSHEET
Study on the Efficiency of EU Public Administrations in helping firms grow
Background Study for the European Competitiveness Report 2014
What we wanted to learn:
This study aims at addressing the following main research questions:
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Can the quality in the EU Public Administrations (PA) considerably affect firms' growth in a country's industry? Are there
indicators of PA quality that can be linked to the changes in the share of High Growth Firms and the employment in a
country? Which are the channels via which the poor performance of a country's PA may affect firms' growth?
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What will be the magnitude of the impacts on the share of HGFs if potential PA reforms are implemented?
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What is the role of EU PA when this is considered as an intermediate input for various economic sectors?
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Considering different dimensions of PA, which are the most impeding ones for firms' growth and how is the relative
performance assessed along these dimensions across Member States?
We discovered:
9
What are the projected impacts on the share of HGFs in the case of hypothetical PA reform scenarios
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A greater level of PA efficiency induces higher rates of fast-growing firms, in particular by increasing firms' turnover and net
market-entry rates. The general indicators of PA quality (e.g. government effectiveness, regulatory quality, freedom from
corruption and independent judiciary) capture a more pronounced impact compared to the specific ones (e.g the time to
resolve insolvency) and therefore, could be preferred in the benchmarking of the MS PA performance on stimulating firms'
growth.
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The impact of the PA policy reforms is found to be heterogeneous across countries and across sectors.
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At a country level, the impact of PA reforms is predicted to be considerably strong; in some cases (e.g. Romania) the
countries double or even triple the share of the HGFs in their economy when the level of their PA efficiency reaches the
performance standards of the leading countries. The longer is the distance a country needs to cover in terms of improving
its PA efficiency, the bigger is the expected effect on the share of HGF in its industry.
•
At an industry level, the differential impact on the 90th percentile industry as regards firms' turnover rate distribution, is
considerably higher (in most of the cases double) compared to the impact of the PA reforms on the 10th percentile industry.
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However, firms’ growth and employment growth are not identical processes in an industry. Therefore, improving the PA
quality should not be expected to generate trade-offs with regard to the share of high-growth firms and industry
employment growth.
9 The contribution of PA services as intermediate inputs seems to be considerably restricted (in an InputOutput analysis framework). However, there are indications that when Public services are invoiced as fees
(instead of taxes) efficiency gains appear for the other economic sectors.
9 After mitigating econometrically the subjectivity biases which are inherent in the nature of the 'Business
Perceptions' about the burden that a country's PA imposes on firms, the results confirm that tax
administration, corruption and ineffective justice systems are the main obstacles to firms' growth.
Policy Implications
The study provides the following policy considerations:
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The policy measures that will improve the efficiency in a country's PA should be expected to positively affect firms' growth
and employment in its industry. Reforms in a country’s institutions and general governance performance are more evidently
linked to the positive impacts on its industry. Therefore, the 'overall governance' indicators are expected to perform better
in the benchmarking and monitoring of a country's performance when the scope is to improve a country's PA efficiency in
order to facilitate the doing business environment.
•
Policy making should anticipate an asymmetric impact across the countries and their industries, when the same policy
measures are taken to improve the PA efficiency.
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Countries that currently underperform in their PA efficiency, whereas in their industry, firms' growth and employment are
stagnant at low levels, could benefit considerably by setting as a policy priority the increase of their PA efficiency. The more
underperforming is a country's PA, the higher are the expected gains on firms' growth and employment growth from the PA
efficiency-increasing measures.
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PA efficiency-targeted policies should not be expected to contribute at the same extend to the firms' turnover growth and
employment in a MS industry. It appears that, a policy mix should be designed when the scope is to improve PA efficiency in
order to increase both the share of high-growth firms and industry employment growth, at the same time. Hence, the PA
reform policies should be customised to the particular needs of an economy.
•
Policy making should cautiously refer to the 'business perceptions' information when the scope is to evaluate the
contribution of particular dimensions of PA in a country's 'doing business' environment. Tax administration, corruption and
ineffective justice systems indeed impose considerable burdens on firms and therefore, should be considered as the first
sectors of countries' PA to be improved.
•
Evidence-based policy making in the field of PA, requires the compilation and development of appropriate data sets.
Currently, there are considerable data constraints (in the time and country coverage) that hinder the research and
econometric analysis required to support at a large extend (limited time and MS coverage) the evidence-based policy
making. The study highlights the need for the compilation and maintenance of a comprehensive at EU MS-level micro-data
sets which will support the policy making and help in optimising the ongoing PA reforms in EU MS in a way that will improve
the doing business environment.
Contact: Anastasios SARAIDARIS