Analysing the accounting measurement of financial sustainability in local governments through political factors

Abstract

Purpose The purpose of this paper is to obtain new knowledge about the accounting measurement of financial sustainability in local governments, by studying the influence of political factors on the evolution of income statements. Design/methodology/approach This paper analyses income statements of Spanish municipalities from 2006 to 2014, together with mayor profiles and political-institutional factors, using the generalised method of moments system. Findings The income statement represents a useful measure to assess financial sustainability, showing the effect of political factors on three dimensions proposed by IFAC (i.e. service, revenue and debt), such as ideological coincidence, political competition, political ideology, and absolute majority or political fragmentation. Practical implications The findings can be useful for policymakers and accountants responsible for accountability, supervisory bodies, fiscal authorities, voters, users of public services and other stakeholders interested in governmental income statements. Social implications In the Eurozone, the crisis of government finance has made the citizens and the policymakers question the size and volume of public services. Likewise, in countries such as Spain, politicians remain one of the main problems for citizens. These circumstances make it very interesting and timely to study the accounting measurement of financial sustainability and its political explanations. Originality/value The findings provide new empirical evidence about the accounting measurement of financial sustainability in local governments, and they identify political factors that influence the evolution of income statements.

The Influence of Socio-Demographic Factors on Financial Sustainability of Public Services: A Comparative Analysis in Regional Governments and Local Governments

“…However, despite the discrepancy about the measurement of financial sustainability, International Organizations have stressed the usefulness of the governmental financial statements to assess financial sustainability [3,29]. Also, prior research has recognized the usefulness of government Income Statements for reporting the sustainability of public services [6,34,35].…”

“…However, as public income statements include extraordinary activities, the information provided could distort the assessment of the financial sustainability of public entities [24,33] since the most probable is that these activities will not be repeated in a foreseeable future. So, as previous studies suggest [6,9,17], the extraordinary revenues and expenditures should be corrected to make the income statement a more useful measure of the size of intergenerational equity, and thus, of the financial sustainability.…”

“…International Organizations have mentioned that the financial and economic crisis have undercut the capacity of governments to keep providing public services at any level of government. Indeed, the unsustainable tendency of all the governmental levels to spend more than they collect has created significant imbalances in the economic growth among the levels of governments and regions [1][2][3][4][5][6].…”

Determinantes del periodo medio de pago municipal y eficacia del principio de sostenibilidad de la deuda comercial

“…Por otro lado, una argumentación opuesta procede del poder que pueden ostentar los "actores del veto" sobre algunas decisiones políticas (Tsebelis, 1995). De acuerdo con esta idea, la formación de una coalición de gobierno puede ser útil desde el punto de vista de que hay otro partido que controla y supervisa las acciones llevadas a cabo por el partido que está en el poder (Rodríguez-Bolívar et al, 2018).…”

“…Brusca et al (2015b) encuentran que los partidos progresistas españoles presentan mayores niveles deuda, mientras que en el contexto local italiano la ideología política no es una variable significativa para predecir el financial distress. Rodríguez-Bolívar et al (2018) evidencian que la ideología del partido político también importa en los niveles de sostenibilidad financiera. No obstante, hay una serie de estudios aplicados al ámbito español que demuestran que la ideología política no influye en la situación financiera municipal, en base a que las políticas de los municipios españoles están basadas en las necesidades directas de los ciudadanos, lo que supone que el factor ideológico tiene un menor impacto en las administraciones más cercanas a la ciudadanía (Bastida & Benito, 2004;Bastida et al, 2009).…”