This work analyses the effect of the institutional design of public spending on the technical efficiency. The model controls the technical efficiency with two institutional variables for earmarked and autonomous revenues and assess them using two stochastic frontier models. The main findings show that the expenditure of municipalities, regardless of its type, reduces to the technical efficiency of local production. These results support the Brennan-Buchanan collusion hypothesis that decentralization generates an increment in government spending, but it is not translated into better population welfare.
