EFFICIENCY UNDER INFLUENCE: HOW BUREAUCRATIC QUALITY AND RENT-SEEKING SHAPE PUBLIC FUNDS ALLOCATION EFFICIENCY

Abstract

Unproductive and misallocated public spending endures as a major international concern, eroding socio-economic gains and public trust in governance. Recent research often takes an isolated approach either governmental inefficiency or private-sector rent-seeking as singular causes. This study tackles this gap by exploring together the impact of bureaucratic efficiency and rent-seeking behavior on public funds efficiency across 12 countries from 2012 to 2023. Public funds efficiency was measured using Data Envelopment Analysis, considering inputs from health, education, and infrastructure, with outputs reflecting societal welfare indicators. Bureaucratic efficiency evaluated by ICRG Quality of Government Index, while rent-seeking behavior by the reverse Economic Freedom Index. Using OLS and quantile regression, the analysis reveals that bureaucratic efficiency positively influences public funds efficiency (β = 0.1305, p = 0.004), whereas rent-seeking has a significant negative impact (β = -0.1441, p < 0.000). These effects are particularly salient in countries with lower efficiency levels, as highlighted by quantile regression results pointing to sustainable advantages from targeted governance enhancements in these context. It highlights that impact of bureaucratic efficiency and rent-seeking behavior is not one-size-fit-all but varies significantly across different efficiency tiers. The findings offer practical implications for policymaker, calling for bespoke governance reforms and anti-rent-seeking strategies to enhance public resource allocation effectiveness globally.

Keywords: Rent-seeking Behavior, Public Fund Efficiency, Bureaucratic Efficiency, DEA model, Quantile regression, Economic freedom index

https://doi.org/10.5281/zenodo.17257791