(Elsevier, 2022) Arocena Garro, Pablo; Cabasés Hita, Fermín; Pascual Arzoz, Pedro; Institute for Advanced Research in Business and Economics - INARBE
This paper proposes a directional distance model for efficient resource allocation when there is a centralized
decision maker who oversees all units. The model is designed to allocate grants from an upper-tier government to
the municipalities under its jurisdiction. Local governments employ the grants together with levied local taxes to
provide services to their citizens. The objective of our formulation is to optimize grants allocation across municipalities taking into account efficiency, effectiveness and horizontal fiscal equity criteria. The model easily
allows the setting of alternative priorities of the central decision maker, thus permitting quantification of the
trade-off between the potential increase in the provision of local services and its associated cost. The model is
applied to the allocation of current grants in the autonomous community of Navarre in northern Spain.
