Volltext: Very small countries: economic success against all odds

4.3.6 Theoretical expectations versus reality – government levels Table 4.7 analyzes an important feature of the general administration, namely the number of government levels86; hence, we take a closer look at the 
de juredegree of federalism. In Chapter 3 we decided to neglect the extent of federalism, because it is difficult to assess empirically, since the really important characteristic would be the 
de factofederalism. The necessary disaggregated expenditure data are unfortunately not available for a sufficiently large country sample, including smaller countries. Table 4.7 is a very crude approach to assessing the impact of feder - alism and the differences between VSC with regard to federalism. Note that there is no clear-cut theoretical expectation, because the impact of federalism on government expenditure is ambiguous. On the one hand, a higher number of government levels are supposed to raise costs of administration and coordination. However, on the other hand, decisions of smaller, decentralized units are supposed to comply more often with citizens’ preferences. Interestingly, results of empirical studies contradict conventional wisdom and show that the sum of government wages is smaller in federal countries than in more centralized countries. Take, e.g., Austria, with a public wage sum of about 10 percent of GDP in comparison with the much more decentralized countries Germany and Switzerland, with 8.7 and 8.5 percent, respectively.87Given the theoretical imponderability, Table 4.7 should mainly be viewed as descriptive evidence. Although it seems difficult to build theoretical expectations due to contradicting evidence, the argument for an intuitive notion runs along the following lines: The finding that federalism or decentralized govern- ment results in lower costs might be restricted to countries above a cer- tain size threshold. We suppose that this result cannot be applied to VSC without modification and therefore expect VSC to have fewer levels of government than larger countries, also because more than one federal le- vel is rarely required from an economic point of view in small countries. 102 
Very small countries: organizational choice and international outsourcing 86It would be ideal to have the number of employees in the public sector in order to compare it with larger countries. Unfortunately, harmonized data are not available. 87Data based on a WIFO-study, see: http://www.orf.at/orfon/ticker/12373.html?tmp=834 as of 09/08/00.


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