Testing the Reliability of Financial Sustainability. The Case of Spanish Local Governments

Abstract

Local Governments (LGs) have strengthened the financial control as a consequence of mandatory requirements to ensure financial sustainability in their management. The aim of this study is to determine whether financial indicators about financial conditions defined in Spanish regulation are backed by worldwide generally accepted financial benchmarking indicators. For this purpose, we analyze the relationship between Spanish indicators of financial sustainability based on European Union (EU) regulations and Financial Trends Monitoring System Indicators (FTMS) of the International City/County Management Association (ICMA). For this purpose, two methodologies are applied: discriminant analysis and logistic regression, where the dependent variables are each of the Spanish financial indicators and the independent variables are ICMA indicators. The evidence supports that variables that are related to the control of expenditures, debt and the revenues show a greater explanatory power of financial sustainability, being the most important elements which offer relevant information about the financial sustainability measurement of LGs.

Are Central Government Rules Okay? Assessing the Hidden Costs of Centralised Discipline for Municipal Borrowing

“…By contrast, a recent literature review [4] based on a more federalist state (such as Spain) suggests that adopting the Stability and Growth Pact measures left a greater borrowing autonomy to LGs. The implementation of European fiscal regulation into the Spanish domestic framework has been realized with the adoption of financial thresholds that do not exclude the chance for LGs to borrow from banks and markets while respecting the generally accepted concepts of financial sustainability, solvency, and liquidity.…”

“…The lack of fiscal discipline at different public administration levels emerged due to the deterioration of public finances, showing financial instability [4]. The development of budgetary, financial distress can lead to the cost of debt rising with systemic consequences.…”

Solvency and Debt of Rural Communes vs. Their Residents’ Standards of Living: A Polish Case Study

“…Ten indicators relating to the budgetary solvency (ISD1-ID3) and debt (ISD4-ISD10) of local government units were used in identifying the relationships between the categories concerned (cf. [14,25,28,51]). Their list and synthetic descriptions are presented in a tabular form (Table 1).…”

“…Also, there is mutual feedback between the level of sustainable development and the financial standing of LGUs (which the author believes to be mostly driven by the amount and structure of income and expenditure, budgetary solvency, financing for services and investments, and debt levels) (cf. [25][26][27][28]) (Figure 1). Also, there are reasonable grounds for saying that better standards of living of the population might contribute to budgetary solvency or, generally, to increasing the local government's income.…”

Labor allocation: How environmental regulation promotes industrial structure

“…Given the rapid economic growth and serious environmental problems in most countries, international organizations such as the Club of Rome and experts have proposed that economic growth will be restricted by natural resources and is not sustainable (see the review of Meadows et al, 1972). Therefore, most countries have to adopt regulation policies so that environmental regulatory policies will become an important part of public policies and development management in various countries (see more in Torres et al, 2006; Pina et al, 2020). 1 However, the standardized program proposes that environmental regulation functions as a constraint on firm operations.…”