Political competition and local government performance in Nepal

Understanding the relationship between political competition and local government performance is crucial in the context of Nepal's newly established federal system, where empirical evidence on how politics shapes local governance is limited. This paper examines how political competition influences the performance of local governments, using a unique dataset covering 716 out of 753 local governments for the fiscal year 2021/22. First, we apply Data Envelopment Analysis (DEA) to estimate a technical efficiency score for each local government, using local-level characteristics as well as capital and current expenditures. Then, we use a bootstrapped truncated regression to examine the impact of political competition–electoral competition and legislative competition–on local government efficiency. The findings reveal that electoral competition (measured by the number of candidates for the post of mayor or chairperson) is positively associated with government efficiency, while legislative competition (measured by the number of seats distributed among political parties or individuals within the legislative body) is negatively associated with efficiency.