Balanced budget regulations and local government efficiency

Balanced budget regulations (BBRs) are widely used by central governments to keep the spending in local governments under control. In Norway, local governments with persistent deficits over a period of three years or more are recorded in the Register for State Review and Approval of Financial Obligations (Robek). The consequence of being registered in Robek is that the budget and resolutions for raising new loans must be approved by the county governor. The local governments listed in Robek must therefore tighten their budgetary policy in order to be removed from the register. This article applies different measures on service and welfare production and efficiency in Norwegian local governments to studying if production and efficiency is affected by the BBR. We find that the BBR has a positive impact on efficiency. However, production seems to be unaffected. We also evaluate production and efficiency in different service sectors.