Peas in a pod: are efficient municipalities also financially sustainable?

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Drew, J, Dollery, B & Kortt, MA 2016, 'Peas in a pod: are efficient municipalities also financially sustainable?', Australian Accounting Review, vol. 26, no. 2, pp. 122-131.

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Are efficient councils financially sustainable? We argue that an efficient council may not necessarily be financially sustainable. Our subsequent empirical analysis finds limited evidence in favour of an ‘efficiency–sustainability’ nexus. Thus, policies aimed at improving a council's efficiency may not automatically enhance their financial sustainability.

Public policy makers have principally focused on improving the operational efficiency of local government on the presumption that this will result in a more financially sustainable sector. We argue that it is erroneous to assume that an efficient local government entity will necessarily be more fiscally sustainable. To test this argument, we apply an innovative method for empirically testing the association between financial sustainability and operational efficiency to the New South Wales local government system. Our results suggest limited positive associations between financial sustainability measures and municipal efficiency.

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