The Impact of Maximum Allowable Debt Level of Local Government Units on their Investment Potential

  • Ewa Gubernat Wrocław University of Economics and Business
  • Hanna Kociemska Wrocław University of Economics and Business
  • Bernadeta Dziedziak Wrocław University of Economics and Business
  • Leszek Patrzalek Wrocław University of Economics and Business
Keywords: local government debt, investment potential, municipalities, fiscal rules

Abstract

Keeping local government units’ financial stability to run necessary projects is becoming a severe threat due to the remarkable increase of theirs’ debt level. A question arises whether the application of debt limits excessively restrict municipalities’ investment potential. Using the linear regression model, we proved that increasing the maximum allowable debt level decreases investment potential. We have challenged the relevance of using fiscal rules and presented liberalizing the fiscal rules’ principles to assess the investment potential as an indicator to guarantee optimum use of the local government units’ economic potential from different perspectives.

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Published
2021-10-31
Section
Article