Incentive Schemes for Local Government: Theory and Evidence from Comprehensive Performance Assessment in England

This paper studies Comprehensive Performance Assessment, an explicit incentive scheme for local government in England. Motivated by a simple theoretical political agency model, we predict that CPA should increase service quality and local taxation, but have an ambiguous e§ect on the e¢ ciency of service provision. We test these predictions using a di§erence in di§erence approach, using Welsh local authorities as a control group, exploiting the fact that local authorities in Wales were not subject to the same CPA regime. To do this, we construct original indices of service quality and e¢ ciency, using Best Value Performance Indicators. We estimate that CPA increased the e§ective band D council tax rate in England relative to Wales by 4%, and increased our index of service quality output also by about 4%, but had no signiÖcant e§ect on our e¢ ciency indices. There is evidence of heterogenous e§ects of CPA on e¢ ciency, with some evidence that CPA impacted more on less e¢ cient councils, and the "harder test" from 2005-8 having a much bigger effect.