Key Debt Drivers of Local Governments: Empirical Evidence on Municipalities in Poland
DOI:
https://doi.org/10.4335/21.3.591-618(2023)Keywords:
local government, indebtedness, Poland, panel data models, spatial autocorrelationAbstract
In the literature, the debt burden in local governments is considered as a main predictor of the fiscal distress. The growing indebtedness of the municipalities may also negatively affect the business sector. Therefore, this paper examines the significance of key financial and non-financial debt drivers of local governments based on the example of the municipalities functioning in Poland in 2010-2021. The article studies the whole population of the above public units and the influence of the financial, economic, demographic, institutional and spatial factors on their indebtedness. Due to the data, methodology and the robustness check, the fixed effects panel models, Arellano and Bond’s two-step generalized method of moments and the Moran I and LISA statistics were applied. Therefore, the final regressions include significant explanatory variables and might contribute to more efficient debt management and its control. The paper also reveals spatial associations in the field of the indebtedness of local governments.
References
Abbott, D. (2014) Applied Predictive Analytics: Principles and Techniques for the Professional Data Analyst (Indianapolis: John Wiley & Sons).
Abdu, M. I. (2020) Egypt Public Debt Dynamic and its’ Trajectory Projection, Global Journal of Management and Business Research, XX(VII), pp. 15-29.
Alesina, A. & Tabellini, G. (1990) A Positive Theory of Fiscal Deficits and Government Debt, The Review of Economic Studies, 57(3), pp. 403- 414, https://doi.org/10.2307/2298021.
Alińska, A., Kosztowniak, A. & Wajda, M. (2021) Liabilities of Local Government Units in Poland: Identification and Analysis of Diversification Factors, European Research Studies Journal, XXIV(2B), pp. 113-134.
Anselin, L. (1995) Local Indicators of Spatial Association-LISA, Geographical Analysis, 27(2), pp. 93-115.
Ashworth, J., Geys, B. & Heyndels, B. (2005) Government Weakness and Local Public Debt Development in Flemish Municipalities, International Tax and Public Finance, 12, pp. 395–422, https://doi.org/10.1007/s10797-005-2317-3.
Autor, D. H., Dorn, D., Hanson, G. H. (2013) The China Syndrome: Local Labor Market Effects of Import Competition in the United States, The American Economic Review, 103(6), pp. 2121-2168, http://dx.doi.Org/10.1257/aer.103.6.2121.
Balaguer-Coll, M. T., Prior, D. & Tortosa-Ausina, E. (2016) On the Determinants of Local Government Debt: Does One Size Fit All?, International Public Management Journal, 19(4), pp. 513-542, https://doi.org/10.1080/10967494.2015.1104403.
Baltagi, B. H. (2021) Econometric Analysis of Panel Data, Sixth Edition (Cham: Springer).
Banaszewska, M. & Bischoff, I. (2017) The Political Economy of EU-funds: Evidence from Poland, Journal of Economics and Statistics, 237(3), pp. 191–224, https://doi.org/10.1515/jbnst-2017-1105.
Bastiaens, E., De Borger, B. & Vanneste, J. (2001) Expenditure and Taxation Effects of Local Public Debt and Unconditional Grants: Evidence from Flemish Municipalities, Brussels Economic Review, 17, pp. 71-89.
Bastida, F., Beyaert, A. & Benito, B. (2013) Electoral Cycles and Local Government Debt Management, Local Government Studies, 39(1), pp. 107–132, http://dx.doi.org/10.1080/03003930.2012.683861.
Bayar, Y. (2021) Handbook of Research on Economic and Social Impacts of Population Aging (Hershey: IGI Global).
Békés, G. & Kézdi, G. (2021) Data Analysis for Business, Economics and Policy (Cambridge: Cambridge University Press).
Bohn, F. & Veiga, F. J. (2019) Elections, recession expectations and excessive debt: an unholy trinity, Public Choice, 180, pp. 429–449, https://doi.org/10.1007/s11127-019-00647-x.
Brezovnik, B., Oplotnik, Ž. J., Mlinarič, F., Padovnik, S. A. & Finžgar, M. (2019) Financing municipal tasks in Slovenia, Croatian and Comparative Public Administration, 19(2), pp. 173-206, https://doi.org/10.31297/hkju.19.2.1.
Business Money (MB) (2020) The Netherlands named as the business hub of the world, available at: https://www.business-money.com/announcements/the-netherlands-named-as-the-business-hub-of-the-world/ (April 5, 2023).
Cabasés, F., Pascual, P. & Vallés, J. (2007) The effectiveness of institutional borrowing restrictions: Empirical evidence from Spanish municipalities, Public Choice, 131, pp. 293–313, https://doi.org/10.1007/s11127-006-9116-y.
Cao, M., Duan, K. & Ibrahim, H. (2022) Exploring the Influence of Local Government Debt on Enterprise Investment through the Empirical Evidence at the Municipal Level, Mathematical Problems in Engineering, pp. 1-18, https://doi.org/10.1155/2022/2531808.
Chi, G. & Zhu, J. (2021) Spatial Regression Models for the Social Sciences (Thousand Oaks: Sage Publications).
Cottrell, A. & Lucchetti, R. (2022) Gretl User's Guide (Gnu Regression, Econometrics and Time-series Library), available at: https://gretl.sourceforge.net/gretl-help/gretl-guide.pdf (November 28, 2022).
Czaplak, J. (2016) Analysis of the Effectiveness of Public Services Provision by Local Governments in the Years 2007–2013, Oeconomia Copernicana, 7(2), pp. 223-243, http://dx.doi.org/10.12775/OeC.2016.014.
Dafflon, B. & Beer-Tóth, K. (2009) Managing local public debt in transition countries: an issue of self-control. Financial Accountability & Management in Governments, Public Services and Charities, 25(3), pp. 305-334, https://doi.org/10.1111/j.1468-0408.2009.00479.x.
Das, P. (2019) Econometrics in Theory and Practice. Analysis of Cross Section, Time Series and Panel Data with Stata 15.1 (Singapore: Springer).
Delgado-Téllez, M. & Pérez, J. J. (2020) Institutional and Economic Determinants of Regional Public Debt in Spain, Public Finance Review, 48(2), pp. 212-249, https://doi.org/10.1177/1091142120901672.
Derycke, P.-H. & Gilbert, G. (1985) The Public Debt of French Local Government, Journal of Public Policy, 5(3), pp. 387-399.
DiNapoli, T. P. (2015) Fiscal Stress Close-Up, Indicator Report Albany (New York: Office of the New York State Comptroller (OSC)), available at: https://www.osc.state.ny.us/files/local-government/fiscal-monitoring/pdf/ArchivedCloseUpReports-June2015.pdf (December 18, 2022).
Działo, J., Guziejewska, B., Majdzińska, A. & Żółtaszek, A. (2019) Determinants of Local Government Deficit and Debt: Evidence from Polish Municipalities, Lex Localis - Journal of Local Self-Government, 17(4), pp. 1033-1056, https://doi.org/10.4335/17.4.1033-1056(2019).
Ehalaiye, D., Botica-Redmayne, N. & Laswad F. (2017) Financial determinants of local government debt in New Zealand, Pacific Accounting Review, 29(4), pp. 512-533, https://doi.org/10.1108/PAR-11-2016-0104.
European Commission's Directorate-General for Economic and Financial Affairs (DG ECFIN) (2022) ‘R-G’ Differentials: Latest Developments and Implications for Public Debt Sustainability Fiscal Sustainability, Institutional Paper, 171, pp. 164-177.
Ferrari, E. & Rae, A. (2021) GIS for Planning and the Built Environment: An Introduction to Spatial Analysis (London: Bloomsbury Publishing).
Franzese, R. J. Jr. (2000) Electoral and Partisan Manipulation of Public Debt in Developed Democracies, 1956–90, In: Strauch, R. R., & von Hagen, J. (eds.) Institutions, Politics and Fiscal Policy (New York: Springer), pp. 61–83.
Galiński, P. (2021) Zagrożenie fiskalne jednostek samorządu terytorialnego. Uwarunkowania, pomiar, ograniczanie (Fiscal distress of local governments. Conditions, measurement, reduction) (Gdańsk-Sopot: Wydawnictwo Uniwersytetu Gdańskiego).
Galiński, P. (2015) Determinants of debt limits in local governments: case of Poland, Procedia - Social and Behavioral Sciences, 213, pp. 376-382.
Gibbons, R. D. & Coleman, D. E. (2001) Statistical methods for detection and quantification of environmental contamination (New York: John Wiley & Sons).
Gubernat, E., Dziedziak, B., Kociemska, H. & Patrzalek, L. (2021) The Impact of Maximum Allowable Debt Level of Local Government Units on their Investment Potential, Lex Localis - Journal of Local Self-Government, 19(4), pp. 991-1014, https://doi.org/10.4335/19.3.991-1014(2021).
Hájek, P. & Hájková, V. (2009) Debt analysis of Czech municipalities, Scientific Papers of the University of Pardubice, 14, pp. 36-42.
Heer, B. (2019) Public Economics. The Macroeconomic Perspective (Cham: Springer).
Herczyński, J. (2012) Wskaźniki oświatowe (Educational indicators) (Warsaw: Ośrodek Rozwoju (Edukacji Center for Education Development))
Hoechle, D. (2007) Robust Standard Errors for Panel Regressions with Cross-Sectional Dependence, The Stata Journal, 7(3), pp. 281–312, https://doi.org/10.1177/1536867X0700700301.
Howards, P. P. (2018) An overview of confounding. Part 1: the concept and how to address it, Acta Obstet Gynecol Scand, 97(4), pp. 394–399, https://doi.org/10.1111/aogs.13295.
Ioannou, S. (2023) Regional and municipal debt in the Eurozone: a cross-country analysis, Regional Studies, 57(1), pp. 97–111, https://doi.org/10.1080/00343404.2022.2047914.
Kang, M.-K. (2015) Fiscal Performance in South Korea (1970-2012): Budgetary Reforms with Growing Non-Budgetary Indiscipline, In: Ide, E., Park, G. (eds.) Deficit and Debt in Industrialized Democracies (New York: Routledge), pp. 116-145.
Kirkpatrick, L. O. (2016) The New Urban Fiscal Crisis: Finance, Democracy, and Municipal Debt, Politics & Society, 44(1), pp. 45-80, https://doi.org/10.1177/00323292156174.
Kitchen, H., McMillan, M. & Shah A. (2019) Local Public Finance and Economics. An International Perspective (Cham: Springer).
Kloha, P., Weissert, C. S. & Kleine, R. (2005) Developing and Testing a Composite Model to Predict Local Fiscal Distress, Public Administration Review, 65(3), pp. 313-323, https://doi.org/10.1111/j.1540-6210.2005.00456.x.
Kluza, K. & Dziemianowicz, R. (2019) Analysis of the debt repayment periods of local governments in Poland in the years 2007-2016, Studia Regionalne i Lokalne, 2(76), pp. 5-18, https://doi.org/10.7366/1509499527601.
Kopczewska, K. (2021) Applied Spatial Statistics and Econometrics. Data Analysis in R (New York: Routledge).
Kowalska, I. (2022) Operating surplus of lgus in the context of legal changes resulting in a decline of lgus' current income from pit, The Scientific Journal European Policies, Finance and Marketing, 27(76), pp. 105-118, https://doi.org/10.22630/PEFIM.2018.20.69.
Li, F., Huang, J. & Du, M. (2022) Spatial and nonlinear effects of local government debt on environmental pollution: Evidence from China, Frontiers in Environmental Science, 10, pp. 1-21, https://doi.org/10.3389/fenvs.2022.1031691.
Lewis, B. (2003) Local Government Borrowing and Repayment in Indonesia: Does Fiscal Capacity Matter?, World Development, 31(6), pp. 1047–1063, https://doi.org/10.1016/S0305-750X(03)00047-0.
Lüdemann, N., Shiba, A., Thymianis, N., Heist, N., Ludwig, C. & Paulheim, H. (2020) A Knowledge Graph for Assessing Aggressive Tax Planning Strategies, The Semantic Web – ISWC 2020, pp. 395-410.
Malinowska-Misiąg, E. (2020) Diverse aspects of local fiscal capacity – case study of Poland, Zeszyty Naukowe SGGW, Polityki Europejskie, Finanse i Marketing, 23(72), pp. 113-122, https://doi.org/10.22630/PEFIM.2020.23.72.9.
Medve-Bálint, G. & Bohle, D. (2016) Local Government Debt and EU Funds in the Eastern Member States: The Cases of Hungary and Poland, MAXCAP Working Paper Series, 33, pp. 1-29.
Ministerstwo Funduszy i Polityki Regionalnej (Ministry of Funds and Regional Policy – MFRP) (2023) Raport rynku PPP 2009 – 2022 (Report of PPP market 2009-2022) (Warsaw: Ministerstwo Funduszy i Polityki Regionalnej).
Mohanty, S. K., Dash, A., Mishra, R. S. & Dehury, B. (2019) Economic Development in the Districts of India, In: Mohanty, S. K., Mishra, U. S. & Chauhan, R. K. (eds.) The Demographic and Development Divide in India: A District-Level Analyses (Singapore: Springer), pp. 467-507.
Muñoz, E. & Olaberria E. (2019) Are Budget Rigidities a Source of Fiscal Distress and a Constraint for Fiscal Consolidation?, World Bank Policy Research Working Papers, 8957, pp. 1-87.
Nielen, S. (2016) Trade Credit and Temporary Employment: How Companies Respond to Capital and Labor Market Frictions (Cham: Springer).
Owsiak, K. (2018) Zadłużanie się jednostek samorządu terytorialnego w Polsce - stan i perspektywy, Zeszyty Naukowe Uniwersytet Ekonomiczny w Krakowie, 1(973), pp. 157–173, https://doi.org/10.15678/ZNUEK.2018.0973.0109.
Peterson, G. E. (1998) Measuring local government credit risk and improving creditworthiness (Washington, DC: World Bank).
Poniatowicz, M., Wyszkowska, D. & Piekarska, E. (2017) Controversies Over Non-Conventional Instruments of Financing Budget Needs of Local Government Units, Optimum. Studia Ekonomiczne, 5(89), pp. 99-116, https://doi.org/10.15290/ose.2017.05.89.07.
Ribeiro, N. A. B. & Jorge, S. M. F. (2014) Determinantes do endividamento da administração local: estudo exploratório nos municípios do norte de Portugal, INNOVAR, Revista de Ciencias Administrativas y Sociales, 24(51), pp. 61-78, https://doi.org/10.15446/innovar.v24n51.41488.
Standar, A. & Kozera, A. (2020) Identifying the Financial Risk Factors of Excessive Indebtedness of Rural Communes in Poland, Sustainability, 12(3), pp. 1-25, https://doi.org/10.3390/su12030794.
Stata Press (2021) Stata Longitudinal-Data/Panel-Data Reference Manual Release 17 (College Station: Stata Press).
Statistics Poland (2022) Financial economy of local government units 2021 (Warsaw).
Sui, D. (2008) First Law of Geography, In: K. Kemp (ed.) Encyclopedia of Geographic Information Science (Thousand Oaks: SAGE Publications), pp. 146-147.
Sułkowski, R. (2015) Gminy w klinczu przenoszą długu do spółek (Municipalities in the clinch transfer debts to companies), Rzeczpospolita, 252, p. C7.
Surowka, K. (2021) Role of EU Funds in Financing the Activity of a Local Government in Poland from 2011 to 2020, European Research Studies Journal, 24(1), pp. 1096-1109, http://dx.doi.org/10.35808/ersj/2089.
Tang, Z. (2022) Local Government Debt, Financial Circle, and Sustainable Economic Development, Sustainability, 14(19), pp. 1-29, https://doi.org/10.3390/su141911967.
The Marches Local Enterprise Partnership (MLEP) (2019) The Marches Local Industrial Strategy Evidence Base, available at: https://www.marcheslep.org.uk/wp-content/uploads/2021/01/The-Marches-LIS-Evidence-Base-Final-version-December-2019.pdf (April 5, 2023).
Veiga, L.G. (2012) Determinants of the Assignment of EU Funds to Portuguese Municipalities, Public Choice, 153(1–2), pp. 215–233, https://doi.org/10.1007/s11127-011-9786-y.
Veiga, L. G. & Veiga, F. J. (2014) Determinants of Portuguese local governments’ indebtedness, NIPE Working Papers, 16, pp. 1-33.
Wang, J. (2011) The Health Impacts of Brownfields in Charlotte, NC: A Spatial Approach, In: Maantay, J. A. & McLafferty, S. (eds.) Geospatial Analysis of Environmental Health (London: Springer) pp. 171-190.
Wichowska, A. (2019) Determinants of debt in rural municipalities on the example of the Warmińsko-Mazurskie Voivodeship, Acta Scientiarum Polonorum. Oeconomia, 18(4), pp. 121–130, https://doi.org/10.22630/ASPE.2019.18.4.52.
Williams, A. (2020) Moral hazard in a modern federation, Levy Economics Institute of Bard College. Public Policy Brief, 152, pp. 4-9.
Wojewódzki Urząd Pracy w Sczecinie (Regional Employment Office (REO) in Szczecin) (2022) Bezrobocie rejestrowane w gminach województwa zachodniopomorskiego, (Szczecin: Wojewódzki Urząd Pracy w Sczecinie).
Xu, J., Li, Y., Feng, D., Wu, Z. & He, Y. (2021) Crowding in or crowding out? How local government debt influences corporate innovation for China, PLoS ONE, 16(11), pp. 1-20, https://doi.org/10.1371/journal.pone.0259452.
Yared, P. (2019) Rising Government Debt: Causes and Solutions for a Decades-Old Trend, Journal of Economic Perspectives, 33(2), pp. 115-40, https://doi.org/10.1257/jep.33.2.115.
Zhao, R., Tian, Y., Lei, A., Boadu, F. & Ren, Z. (2019) The Effect of Local Government Debt on Regional Economic Growth in China: A Nonlinear Relationship Approach, Sustainability, 11(11), pp. 1-22, https://doi.org/10.3390/su11113065.
