Public support for performing arts efficiency and productivity gains in eleven European countries

This paper investigates the importance of public cultural expenditure for the efficiency and productivity of the performing arts (PA) firms. To this aim, we estimate a translog production  function using the stochastic frontier approach (SFA), and we obtain the estimates of both  technical efficiency and its determinants for the PA firms in EU-11 countries over the period 2009-2017. The large panel data set enables the application of robust true random-effects SFA techniques, which control for noise, unobserved firms’ heterogeneity and endogeneity of  the inputs. Moreover, by estimating a production function, the characteristics of the  production technology in the PA sector is also derived. The empirical results demonstrate that PA firms are technically inefficient, implying that the investigated firms could increase their artistic output between 32 and 42 percent and that decreasing returns to scale are prevalent,  due to the presence of too many micro and large-scale firms in the European PA sectors. In  contrast to the seminal Baumol and Bowen’s (1965) paper, we also demonstrate that the total  factor productivity (TFP) increased in the EU PA firms over the examined period. Technical efficiency, although relatively low, was the main driver of this productivity growth, as opposed to scale efficiency change or technological change, which display very small or no increases. We also find that, contrary to the common wisdom on its negative effects on firm efficiency, public spending on culture increases the efficiency of PA firms. Within this  context some policy implications are discussed