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Although the theoretical impact of outsourcing on public spending is ambiguous ex-ante, previous cross-country comparisons point towards a positive impact on aggregate. We build a novel database that allows us to explore the association between outsourcing and public spending among Spanish regions between 2002 and 2018. This approach greatly reduces unobserved heterogeneity and limits concerns about bias in the estimates. Our baseline results point towards a positive association between outsourcing and expenditure. However, our analysis also unmasks important divergences among expenditure categories and economic conditions. The results are robust to the inclusion of efficiency indicators and several controls.

Outsourcing and public expenditure: an aggregate perspective with regional data