Natural Output Levels: Fiscal and Monetary Policy Impact

Natural Output Levels: Fiscal and Monetary Policy Impact In this essay I discuss whether the fiscal and monetary policy has impact on the natural level of output. Natural level of output, in other words potential output is a total gross domestic product (GDP) that could be produced by an economy if all its resources were fully employed. This means if the economy is at natural level of output, the unemployment rate equals the NAIRU or the natural rate of unemployment and other factories, such as technology and capital are kept at optimal capacity level. We can derive the natural level of output function. It is given by: Yn=Nn=L(1-un) where natural level of output is equal to natural level of employment and it is equal to the labor force L times 1 minus the natural rate unemployment rate un. In addition, the natural level of output satisfies this equation: F((1-Yn)/L,z)=1/(1+ÃŽÂ ¼) The natural level of output is such that, at the associated rate of unemployment, the real wage chosen in wage setting the left side of equation is equal to the real wage implied by price setting the right side of equation. However, it is hard to change the natural level of output as it is difficult to change the natural level of unemployment. Lets consider why natural unemployment rate cannot be changed by government policies. Famous economists Friedman and Phelps explained that using Phillips curve. They opposed this idea on theoretical grounds, as they noted that if unemployment was to be permanently lower, some real variable in the economy, like the real wage, would have changed permanently. Why this should be the case because inflation was higher, appeared to rely on systematic irrationality in the labor market. As Friedman remarked, wage inflation would eventually catch up and leave the real wage, and unemployment, unchanged. Hence, lower unemployment could only be attained as long as wage inflation and inflation expectations lagged behind actual inflation. This was seen to be only a temporary outcome. Eventually, unemployment would return to the rate determined by real factors independent of the inflation rate. According to Friedman and Phelps, the Phillips curve was therefore vertical in the long run, and expansive demand policies would only be a cause of inflation, not a cause of permanently lower unemployment. The policy implication is that the natural rate of unemployment cannot permanently be reduced by demand management policies (including monetary policy), but that such policies can play a role in stabilizing variations in actual unemployment. So, we should find out what exactly impact the government policies have to the countrys economy. Firstly, we should consider monetary policy and whether it has affect to the natural level of output. Monetary policy is the process a government, central bank, or monetary authority of a country uses to control the supply of money, availability of money, and cost of money or rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates to combat inflation. Lets look how the monetary policy is working and that is then happening to equilibrium output. Suppose that government is running the expansionary monetary policy and increase the level of nominal money from M to M. Assume that before the change in nominal money, output is at its natura l level. So now we will try to find out does the monetary policy affect the natural level of output. In the Figure 1 we see that aggregate demand and aggregate supply cross at point A, where the level of output is equals Yn, and the price level equals P. Figure 1. Suppose the nominal money level increase. Remember the equation Y=Y(M/P,G,T). For a given price level P, the increase in nominal money M leads to an increase in the real money stock M/P leading to an increase in output. Aggregate demand curve shifts from AD to AD. In the short run economys equilibrium goes from A to A, output increases from Yn to Y and prices increases from P to P. Over time, the equilibrium changes. As output is higher than the natural level of output, the price level is higher than was expected so the wage setters revise their expectations which cause AS curve to shift up. The economy moves up along the aggregate demand curve, AD. The adjustment process stops when output is returned to the natural level of output. In the medium run the aggregate supply curve is AS, the economy is at point A and the price level have rose and is equal to P. So the only effect achieved by monetary policy in medium run is price level rise. The proportional increase in the nominal money stock is equal to the proportional increase in prices. So we can see that expansionary monetary policy did not affect the natural level of output. We should consider why it did not succeed. As we know that stabilizing inflation will also stabilize output at its natural level, so it suggest assumption that monetary policy does not affect natural level of output, but only changes real level of output and returns it to the position of natural level of output. So, in the short run, monetary policy affects the level of real output as well as its composition: an increase in money leads to a decrease in interest rates and a depreciation of the currency. Both of these lead to an increase in the demand for goods and an increase in output. In the medium run and the long run, monetary policy is neutral: changes in either the level or the rate of growth of money have no effect on output or unemployment, so it cannot affect the natural level of unemployment and the natural level of output. Changes in the level of money lead to proportional increase in prices. Changes in the rate of nominal money growth lead to corresponding changes in the inflation rate. Secondly, we should consider the fiscal policy and whether it affects the natural level of output. Fiscal policy is the use of government expenditure and revenue collection to influence the economy. Fiscal policy can be contrasted with the other main type of economic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and the supply of money. The two main instruments of fiscal policy are government expenditure and taxation. Changes in the level and composition of taxation and government spending can impact on the following variables in the economy: aggregate demand and the level of economic activity; the pattern of resource allocation; the distribution of income. Lets consider the fiscal policy impact to countrys economy and natural level of output. Take an example the government is running a budget deficit and decides to reduce it by decreasing it spending from G to G and leave taxes T unchanged. Assume that output is initially at the natural level of output so that the economy is at point A in figure 2 and output equals Yn. Figure 2. The decrease in government spending from G to G shifts the aggregate demand curve from AD to AD: for a given price level, output is lower. In the short run, the equilibrium moves from A to A: output decreases from Yn to Y, and the price level decreases from P to P. As we can see the deficit reduction leads to lower output. In the medium run as long as output is below the natural level of output, the aggregate supply curve keeps shifting down. The economy moves down along the aggregate demand curve AD, until the aggregate supply curve is given by AS and the economy reaches point A. By then, the recession is over, and output is back at Yn. Like an increase in nominal money, a reduction in the budget deficit does not affect output forever. Eventually, output returns to its natural level. However there is an important difference between the effect of a change in money and the effect of a change in deficit. In this case output is back to the natural level of output, but the price level and the interest rate are lower than before the shift. So we can conclude that fiscal policy cannot affect the natural level of output it only affects the real level of output which in the medium and long run comes back to its natural level. Thirdly, we should consider whether government has any other policy that can affect the natural level of output. We have find out neither fiscal nor monetary policy cannot affect the natural level of output by itself. However, using both of these policies together in appropriate way can cause a desirable result and a change the natural level of output. Lets look in Figure 3, which shows the mix of monetary and fiscal policy. There are two ways to stabilize income at Y*, which is the natural level of output. First, there is expansionary or easy fiscal policy. This leads to a high IS schedule IS1. To keep income in check with such an expansionary fiscal policy, tight monetary policy is needed. Government choose a low money supply target, which is represented by LM1 schedule in the Figure 3. Equilibrium E1 is at output Y*, but has the high interest rate r1. With high government spending, private demand must be kept in check. The mix of easy fiscal policy and tight monetary policy implie s government spending G is a big part of national income Y* but private spending (C + I) is a small part. Alternatively, government interested in long-run growth may choose a tight fiscal policy and easy monetary policy. In this case target income Y* is attained with a lower interest rate r2 at the equilibrium E2. With easy monetary policy and tight fiscal policy, the share of private expenditure (C + I) is higher, and the share of government expenditure lower, than at E1. With lower interest rates, there is less crowding out of private expenditure. It rises the investment level and high investment increases the capital stock more quickly, giving workers more equipment with which to work and raising their productivity. In the long run it will cause the growth of the natural output level. Figure 3. Income Y* Interest rates r1 r2 E1 LM1 LM0 IS0 IS1 E4 E3 E2 So we can make a conclusion, that neither the fiscal nor the monetary policy can affect the natural level of output working separately. Though, if the government uses both policies, this mean use the mix of monetary and fiscal policies, for example for expanding the government spending on such things as basic research, public health, education, and infrastructure, this will cause the long-term growth of potential output. EGovernment: History, Causes and Trends EGovernment: History, Causes and Trends BENCHMARKING EGOVERNMENT SERVICES Abstract: Governments around the world have embraced the use of Information and Communication Technologies (ICTs). This represents a relatively new branch of study within the IT field. EGovernment Services are provided through many different means of access and to a variance of audiences, citizens, businesses or even other governmental entities. After clarifying the definitions and differences among similar terms (i.e. eGovernance and Digital Government, eDemocracy) this paper examines how eGovernment is measured by analyzing the dominating methodologies that are used. Furthermore, following specifically the eGovernment benchmarking methodology that is used by the European Commission, a greater focus in the evolution of eGovernment in Greece has been made. The finding through this assessment was far from satisfactory. Particularly, comparing the 20 Basic eGovernment Services offered in Greece, from 2007 to 2009, no development in terms of improvement, has taken place. Finally, the measures tha t governments need to undertake are discussed. Introduction In the past years, assisted by the invasion of Information Technology in everyday lives, governments all over the world have begun widely using information technologies for increasing the effectiveness and quality of the services they provide. These initiatives have become known as â€Å"electronic government† or eGovernment services. In most cases, when words gain that attractive â€Å"e-â€Å" in front of them, the popular belief is that they have become â€Å"electronic†, whatever that means, even though in some cases it does not make much sense. This confusion is much more obvious when the original word itself has conceptual and abstract meanings. Words like Government and Governance. Section I presents the most popular definitions, choosing the one that describe each term the best, and clarifies boundaries between the most common terms. Furthermore, the different ways that eGovernment can be classified, depending on the delivery model or the audience, is outlined. Although the definitions of eGovernment may vary widely, there an obvious shared theme emerges; eGovernment involves using information technology, and especially the Internet, to improve the delivery of government services to citizens, businesses, and other government agencies. It acts as enabler for citizens to interact and receive services from governments twenty four hours a day, seven days a week. Monitoring eGovernment development and evaluating its effectiveness is a complex and challenging task, as the phenomenon is new and dynamic. In Section II, the basics of Benchmarking are presented and its structural elements are analyzed. Focusing on specific examples of methodology used, a set of four dominant practices that represent the longest running efforts for measuring eGovernment is chosen to be explored further. Using the reports publish by each one of them, on a periodical basis, their inner workings are analyzed and the various developments, changes and evolutions in the methods employed by each one are mentioned. Section III focuses at benchmarking of eGovernment Services in Europe. In order to recognize how eGovernment has evolved and matured within the European Union, the relevant European directives, initiatives and frameworks for the development of eGovernment Services in the region since 1999 are examined. Following that, the methodology used for benchmarking eGovernment the European Union is examined in detail. All measuring elements, including some that were used for the first time in the most recently published report are evaluated. Having established what eGovernment is, what Benchmarking is and how its methodologies function, Section IV uses the data from the latest European eGovernment Benchmarking Report, which was published in November 2009, to assess how the Greek eGovernment landscape evolved since the previous report in 2007. The results are disappointing. When comparing the 20 Basic eGovernment Services offered in Greece, there was no improvement, what so ever, from 2007 to 2009. Following that, Greek performance in the two new indices introduced in the latest report (EProcurement and User Experience) is reported and compared to the respective EU27+ average. Finally, in Section V, a general overview is provided along with the conclusions about the (lack of) progress in eGovernment in Greece. Scope and aims The scope of this project is to analyze how the meaning of eGovernment has evolved in the past few years and then review the current trends in benchmarking the penetration sophistication of eGovernment services in Europe and the rest of the world. Furthermore, this project reports and analyses the level of eGovernment services offered in Greece. The basic aims of this project are: Define the eGovernment ecosystem, typology and taxonomy. Analyse the dominant methodologies of benchmarking eGovernment services Gather and process existing results about eGovernment in Greece, regarding service penetration and sophistication, along with other relevant metrics. Resources This project relies heavily on research. In particular, a lot of research on what the different and sometimes contradicting terms that define eGovernment as well as the rest of the relevant terms in academic papers throughout the previous decade was made. Following that, further research about the current and past trends in benchmarking in general and eGovernment benchmarking in particular are is conducted. From there on, having established what eGovernment is and what the provided services should be, along with how they are measured, more research was conducted in order to reveal what the actual current level of provided eGovernment services is. To accomplish this, reports from many different parties are used. These include reports published both by well knows analyst firms or government bodies in various levels as well as reports issued at a global level such as the United Nations to local reports issued by the authorities of each country such as the IT Observatory in Greece. Typology Convention Throughout the bibliography, or any other sort of resource for that matter, â€Å"electronic† terms do not have a consistent representation. So, just like electronic mail can be found abbreviated in quite a few forms, â€Å"electronic† Government is abbreviated to eGovernment, e-Government, E-Government etc. To avoid this inconsistency, through this project the term eGovernment will be used (changed to EGovernment only in the beginning of sentences). This convention will apply to â€Å"electronic† terms that will be used such as eGovernance. I. EGovernment, eGovernance and Digital Governance EGovernment is one more of the recent years â€Å"buzzwords†. It is usually either paired with the word â€Å"services† at the end or other words like eGovernance and Digital Government. Like every other (relatively) new and cool â€Å"buzzword† they are used widely by a broad spectrum of individuals who represent mostly two different backgrounds. Information technology and politics. The first because it is a technological issue, the later because they have come to realize, even though a little late, that they represent an excellent vehicle for them to provide a better experience to anyone who interacts with the Government. But, what do these terms mean? Do they collide or conflict each other? How about covering or including one another? A. EGovernment Definitions There is not one, unique and commonly accepted definition for eGovernment. It is quite difficult to decide over a specific one but after the research made, the following definition from the World Bank (ÃŽ  ÃŽâ€˜ÃŽ ¡ÃŽâ€˜ÃŽ  ÃŽÅ¸ÃŽÅ"ÃŽ  ÃŽâ€") describes it best: â€Å"Government refers to the use by government agencies of information technologies (such as Wide Area Networks, the Internet, and mobile computing) that have the ability to transform relations with citizens, businesses, and other arms of government. These technologies can serve a variety of different ends: better delivery of government services to citizens, improved interactions with business and industry, citizen empowerment through access to information, or more efficient government management. The resulting benefits can be less corruption, increased transparency, greater convenience, revenue growth, and/or cost reductions ((AOEMA), 2004). Although other definitions have been provided, this definition is preferred. The reason is that it is the most concise and the easiest to be understood since apart describing in simple words how eGovernment is utilized, it goes on to offer a very brief, yet to the point, reference to its main advantages. EGovernment definitions various other sources as follows:  · United Nations definition ((AOEMA), 2004): â€Å"E-government is defined as utilizing the Internet and the world-wide-web for delivering government information and services to citizens.† * Global Business Dialogue on Electronic Commerce GBDe definition ((AOEMA), 2004): â€Å"Electronic government (hereafter e-Government) refers to a situation in which administrative, legislative and judicial agencies (including both central and local governments) digitize their internal and external operations and utilize networked systems efficiently to realize better quality in the provision of public services.† * Gartner Groups definition: â€Å"the continuous optimization of service delivery, constituency participation, and governance by transforming internal and external relationships through technology, the Internet and new media.† * Definition of the Working Group on eGovernment in the Developing World: E-government is the use of information and communication technologies (ICTs) to promote more efficient and effective government, facilitate more accessible government services, allow greater public access to information, and make government more accountable to citizens. E-government might involve delivering services via the Internet, telephone, community centers (self-service or facilitated by others), wireless devices or other communications systems.† EGovernment is in the first stages of development. Most governments have already taken or are taking initiatives offering government services online. However, for the true potential of eGovernment to be realized, government needs to restructure and transform its long entrenched business processes. EGovernment is not simply the process of moving existing government functions to an electronic platform. Rather, it calls for rethinking the way government functions are carried out today to improve some processes, to introduce new ones and to replace those that require it. The range of services that may be provided by e-government spans from simple information sites to fully interactive experiences where users and government engage in a dialog mediated by information technology. Internal information systems of Government agencies, information kiosks, automated telephone information services, SMS services and other systems all comprise e-Government services. All these are applications of Information and Communications Technologies (ICT) to improve the services of the Government towards its primary clients: the citizens. In the last few years, there has been much talk of mobile government or m-government. MGovernment refers to the use of wireless technologies like cellular/mobile phones, laptops and PDAs (Personal Digital Assistants) for offering and delivering government services. MGovernment is not a substitute for e-government, rather it complements it. 1. Benefits of eGovernment E-Government initiatives contribute to citizen empowerment by making information about government processes and decisions easily available, and allowing information-sharing among people and organizations, and between citizens and the civil service (Accenture and the Markle Foundation, 2001). Well-informed citizens are better able to hold their governments accountable. Governments are then compelled to improve the quality of services, expand accessibility of these services, and increase responsiveness to their constituents. Many Government services rely on information passed among different offices within a department or across departments. The large amount of information and paperwork required results in an environment where for red tape rips, the workforce is inefficient and bureaucratic, and the delivery of services is ineffective. With the usage of ICT, the government bureaucracy and citizens are both winners in the battle against the paper trail. eGovernment allows government kno wledge and data exchange to be accessed more easily (whether public or secure) by the appropriate offices or individuals. By this, it reduces redundancies of information flows, and resulting in overall increased productivity. Another result of the integration of operations of government agencies is the improvement of transparency in government. EGovernment minimizes redundant information flows, helps to eliminate duplications of functions, and improves the adherence of public servants to proper government procedures, thereby reducing opportunities for corruption. This, provided it is accompanied by well-informed and active citizens, will assist in limiting the relationship between bureaucracy and corruption and will help lead to a higher sense of accountability among officials. B. EGovernment Taxonomy EGovernment can be classified according to different criteria. It can be classified according to its level, its audience and last but certainly not least, according to the delivery mechanism used. 1. Reach EGovernment can be categorized in the following five distinct levels depending on how broad it is. The levels are: * International * National * Regional * State/Provisional * Local These levels are illustrated below (see 1 adapted from Heeks, 2006) 2. Audience The question of where eGovernment originates is pretty much self-explanatory. Nevertheless, the same does not apply when wondering about who is in the receiving end. The answer that first comes to mind is, the citizens. But isnt so. Apart from citizens, there are other entities that are benefited by eGovernment services. According to Backus, â€Å"the three main target groups that can be distinguished in eGovernment concepts are government, citizens and businesses/interest groups. The external strategic objectives focus on citizens and businesses and interest groups, the internal objectives focus on government itself† (Backus, 2001). a) Government to Citizens (G2C) Government to Citizen activities are those in which the government provides, on-line, one-stop access to information and services to citizens. G2C applications allow citizens to ask questions of government agencies and receive answers, such us: * File income taxes * Pay taxes * Arrange driving tests or renew drivers licenses * Pay traffic tickets * Make appointments for vehicle emission inspections and * Change their address In addition, a government could: * Distribute information on the web * Provide downloadable forms online * Conduct training (e.g., in some US States, the classes for the drivers tests are offered online) * Assist citizens in finding employment * Provide touristic and recreational information * Provide health advice about safety issues (e.g. warnings for epidemics like the recent H1N1 virus) * Allow transfer of benefits like food coupons * File natural disaster relief compensation electronically through the use of smart cards; and the list goes on. b) Government to Business (G2B) Government to Business activities refers to those where the government deals with businesses such as suppliers using the Internet and other ICTs. It is a bidirectional interaction and transaction: Government to Business (G2B) and Business to Government (B2G). B2G is about businesses selling products and services to government. The most important G2B areas are eProcurement (which essentially is actually a reverse auction) and the auction of government surpluses. c) Government to Government (G2G) Lastly, Government to Government refers to those activities that take place between different government organizations/agencies/entities. Many of these activities aim to improve the effectiveness and efficiency of overall government operations. One such example is the Intelink, an intranet that carries classified information shared by different U.S. intelligence agencies. 3. Delivery Mechanism EGovernment services are provided not only via the Internet. Instead, many other means are often used. In fact, studies and reports indicate that these â€Å"other† means of eGovernment services provision show in some cases extremely high utilization. For example: * Telephony dominates channel usage in some situations: Accenture (2005) reports 63% of industrialized country respondents contacting government by telephone; compared to 31% using the Internet over a 12-month period. * In-person visits dominate in other situations: an Australian survey reports half of government contacts to be face-to-face compared to one-fifth undertaken via the Internet (AGIMO 2005). * Survey data also reflects an ongoing preference for telephone or in-person channels especially for transactional, problem-solving, urgent and complex interactions (AGIMO 2005, Horrigan 2005). a) Multichannel Examples Some Governments have embraced this reality and adopted a multichannel approach to the services they offer. In its Progress Reports, the European Comission includes some specific examples: * In Malta, citizens can access their personal social security records and payments via the internet, and may also opt to be notified about their social security payments via SMS rather than receiving printed payment advice by post. However, the most innovative initiative is the introduction of eGovernment Agents that act as intermediaries to those without access. (ePractice eGovernment Factsheets Malta, 2009) * In Austria, all websites that belong to the .gv.at domain are available free of charge or connection fees via wireless hotspots (WLAN), and via public kiosks, thanks to an excellent cooperation between the Austrian Government and two major telecommunication providers. Similar to Malta, Austria also has legislation in place allowing officials to act as intermediaries for citizens who do not have online access or a citizen (ePractice eGovernment Factsheets Austria, 2009) * In Spain, 060 is the magic code providing a single access point. Many services provided by different administrations can be accessed via the 060 network, whether they are office-, internet-, or phone-based. Citizens can access the networks 2800 points of presence in the street or their office on the web, by the phone (060) or SMS. The 060 phone number is intended to replace over 1000 phone numbers available for citizens to access information of the General Administration of the State. The network is available 24/7 and currently offers 1225 national, regional and local public services. It is worth noting that In August 2007, only 15 months after its creation, the citizen information phoneline 060 had already dealt with 700000 enquiries. (ePractice eGovernment Factsheets Spain, 2009) C. EGovernance Definitions Just like eGovernment, there is not a single common definition to describe eGovernance. However, the UNESCO defines it best: â€Å"E-governance is the public sectors use of information and communication technologies with the aim of improving information and service delivery, encouraging citizen participation in the decision-making process and making government more accountable, transparent and effective. E-governance involves new styles of leadership, new ways of debating and deciding policy and investment, new ways of accessing education, new ways of listening to citizens and new ways of organizing and delivering information and services. E-governance is generally considered as a wider concept than e-government, since it can bring about a change in the way citizens relate to governments and to each other. E-governance can bring forth new concepts of citizenship, both in terms of citizen needs and responsibilities. Its objective is to engage, enable and empower the citizen.† Other definitions include * â€Å"EGovernance, meaning ‘electronic governance is using information and communication technologies (ICTs) at various levels of the government and the public sector and beyond, for the purpose of enhancing governance.† (Bedi et all, 2001, Holmes , 2001 and Okot-Uma, 2000). * Whereas according to Backus (2001), eGovernance is defined as the, â€Å"application of electronic means in (1) the interaction between government and citizens and government and businesses, as well as (2) in internal government operations to simplify and improve democratic, government and business aspects of Governance.† D. Digital Government The term Digital Governance was introduced more than 7 years ago (McIver Elmargarmid, 2002). Notions such as eGovernment, eGovernance and any future technology of ICT (e.g. Web 2.0 applications), should fall under the Digital Governance umbrella (Schellong, 2009). This term has been preferred by other researchers as well, due to the excessive usage of adding letters like â€Å"e† (electronic), â€Å"m† (mobile), â€Å"u† (ubiquitous) or â€Å"2.0† to government-related terms. Schellong goes further to suggest a specific typology (2008) as illustrated below in 2: EGovernment contains the terms: * EAdministration Internal use of ICT * EServices. External use of ICT * EDemocracy. Use of ICT for direct public participation in government (decision making or voting) EGovernance is a completely different branch and deals with government, society and economy. E. Open Government In the last decade, there have been many efforts to promote eGovernment. A new initiative has emerged though, Open Government, or OpenGov as it is usually abbreviated. OpenGovernment efforts have begun not only in the US but also in other countries, like Greece. Although OpenGovernment and eGovernment have similar characteristics and share common goals, the greatest one being the promotion of transparency, they are not the same. Open Government can be argued to be an evolution of eGovernment (GUSTETIC, 2009), since the only reason that it exists as an initiative today is because of advances made by eGovernment along with various technological improvements and innovations. II. Benchmarking A. Definition Benchmarking is defined as the process of measuring the performance of an organization along with the practices it applies in key areas and subsequently comparing them to other organizations. It is widely accepted in the private sector and is being used as a practical tool in order to achieve positive results with unlimited potential. EGovernment benchmarking means undertaking a review of comparative performance of eGovernment between nations or agencies. These studies have two purposes: * Internal: Benefit the individual and/or organization undertaking the benchmarking study * External: Benefit achieved for users of the study. This project falls into the first category, as described in the Scope and Aims paragraph earlier in the document. B. Goals With new expectations about their performance, government entities are being encouraged to look at ways of implementing changes in their practices. Benchmarking provides them with one of their most useful options. In every industry, there are ways of doing things that are broadly recognized as standard practices for that industry. However, every industry has its leaders. These leaders are organizations that over perform when measured against those standards. They have achieved â€Å"best practices† as demonstrated by their results in quality, cost, customer satisfaction and responsiveness. Benchmarking aims to discover what the â€Å"best practices† are that lead to superior performance. In greater detail, the process of benchmarking e-Government : * Fosters accountability for eGovernment projects. * Helps meeting rising public expectations * Enables government officials to take more informed decisions and corrective actions * Validates the generated public value * Fosters projects interchange Moreover, benchmarking can be distinguished from other traditional forms of evaluation by its attempt to visualize â€Å"best practices† through normalizing comparison and by urging public entities to ask themselves what they can do to promote them. Benchmarking enables and motivates them to determine how well current practices compare to others practices, locate performance gaps, experience best practices in action, and prioritize areas for improvement or other opportunities. It is quite important to note that â€Å"Benchmarking is not the same as benchmarks. Benchmarks are performance measures and benchmarking is the action of conducting the evaluation.† (Yasin, 2002). C. Data Sources After establishing what benchmarking is, the most common data sources are evaluated.. 1. Calculated Indicators Quite a few benchmarking reports use composite indicators, for example, for the purposes of national rankings. Because it is not always clear how they are calculated or researched, composites have been criticized (UIS 2003) for their lack of transparency along for their subjectivity. Fortunately, a guide for good practice in use of composites has been developed (eGEP 2006a:45) and includes: * Developing a theoretical framework for the composite. * Identifying and developing relevant variables. * Standardizing variables to allow comparisons. * Weighting variables and groups of variables. * Conducting sensitivity tests on the robustness of aggregated variables. Other than the composite calculation of national rankings, there seems to be little use of calculated indicators in the benchmarking of e-government. The most commonly used indicators include: * Benefit/Cost Ratio. * Demand/Supply Match. * Comparative Service Development. * National Ranking Some examples along with the methods used for each indicator are illustrated in Table 1below (adapted from Heeks, 2006). Calculated Indicator Example Method Benefit/Cost Ratio Expected financial benefit (impact) / Financial cost (input) (NOIE 2003) Interview (internal self-assessment / internal administrative records) Demand/Supply Match Preference for online channel in particular services versus Online sophistication of that service (Graafland Essers Ettendgui 2003) Mass citizen survey Comparative Service Development Stage model level of citizen services versus business services (Capgemini 2005) Stage model level of different service cluster areas (Capgemini 2005) Third party Web assessment National Ranking Composite of features and stage model level for national websites (West 2005) Composite of ICT and human infrastructure with stage model level for national/other websites (UN 2005) Composite of stage model level, integration and personalization of national websites (Accenture 2005) Third party Web assessment Table 1 Calculated Indicators Used in eGovernment Benchmarking (Heeks, 2006). 2. Standard Public Sector Indicators Apart from calculated indicators, others (Flynn 2002) suggest using a standard indicator set for public sector performance. This set is displayed in Table 2 below (adapted from Flynn 2002). Indicator Explanation eGovernment Example Benchmark Economy The amount of inputs used Expenditure per capita on IT None Internal efficiency The ration of input intermediates Cost per website produced per year Minimization External efficiency The ratio of inputs: outputs (use) Cost per citizen user of government websites per year Minimization Internal effectiveness The fit between actual outputs (use) and organizational objectives or other set targets The extent to which underserved communities are users of e-government services Maximization External effectiveness The fit between actual impacts and organizational objectives or other set targets The extent to which citizens are gaining employment due to use of an eGovernment job search service Maximization Quality The quality of intermediates or, more typically outputs (use) The quality of eGovernent services as perceived by citizen users Maximization Equity The equitability of distribution of outputs and impacts The quality of time/money saved by eGovernment service use between rich and poor Maximization Table 2 Standard Indicators for eGovernment Performance (Flynn 2002) D. Methodologies Having described the methodologies used more commonly when benchmarking eGovernment services, the next step is to illustrate how the necessary data is gathered. There are a number of official methods (eGEP 2006b): * Focus groups * Internal administrative records * Internal self-assessment * Mass user surveys * Official statistics * Pop-up surveys * Third part web assessment * Web metrics and crawlers Each of these methods can be compared in four different and distinct factors (Heeks, 2006). Those are: * Cost: The time and financial cost of the method. * Value: The value of the method in producing data capable of assessing the downstream value of e-government. * Comparability: The ease with which data produced can be compared across nations or agencies. * Data Quality: The level of quality of the methods data. In particular, Heeks suggests using the CARTA (Complete, Accurate, Relevant, Timely, Appropriate) check list when assessing data quality (2006). There is also a set of methodologies that are not used as frequently as the ones mentioned earlier. These are: * Intermediary Surveys. * Intranet Assessment. * Public Domain Statistics. * Public Servant and Politician Surveys. 1. Automation With new eGovernment services being introduced by Governments every day, benchmarking is gradually becoming a more and more important mechanism for identifying best practices and keeping track of developments, but as the number of the offered services increase, data collection becomes more and more difficult. Apart from that, since eGovernment is being expanded to other eGovernment levels, as illustrated earlier in 1, it is only natural that the number of benchmarking studies is increasing fast. Thus, the traditional approach of fata collection has not only become a very challenging but also a very resource intensive task. In order to address this matter, there are projects (eGovMon) which attempt to automate the data collection (Research Council of Norway, 2009). In particular, the eGovMon project is co-funded by the Research Council of Norway and â€Å"is developing methodology and software for quality evaluation of web services, in particular eGovernment services, concerning four areas:†  · Accessibility  · Transparency  · Efficiency  · Impact Additionally eGovMon will provide a policy design tool