Determinants of local government deficit and debt: Evidence from Polish municipalities
Public finance theory stresses that some political and socioeconomic factors exist that influence local government deficits and debts. Accordingly, our study analyses the factors that determine the indebtedness in Polish local governments. We analyse the population of Polish municipalities (2,479) for the years 2002-2016. The method of investigation is a two-equation microeconometric panel model with fixed effects, allowing us to estimate the strength and directions of the exogenous variables’ influence on the communes’ budget outcome (deficit/surplus). Our ﬁndings reveal the inﬂuence of variables such as the communes’ investment expenditures and own incomes, a dependent population (a high share of the older population), and the number of companies. We also find that the election cycle in local governments is a significant factor affecting their budget outcomes.
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