The impact of population size on the risk of local government default
Metadata
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Buendía Carrillo, Dionisio; Lara Rubio, Juan; Navarro Galera, Andrés; Gómez Miranda, María ElenaEditorial
Springer Nature
Materia
Default risk Local government Population size effect Basel regulation
Date
2020Referencia bibliográfica
Published version: Buendía-Carrillo, D., Lara-Rubio, J., Navarro-Galera, A. et al. The impact of population size on the risk of local government default. Int Tax Public Finance 27, 1264–1286 (2020). [https://doi.org/10.1007/s10797-020-09591-9]
Abstract
Since the outbreak of the international economic crisis in 2008, governments’ fiscal
policies have been strongly influenced by high levels of public debt and default. Studies
of the causes of debt problems for large local governments have emphasised the interest
and timeliness of identifying factors that may influence the probability of municipal
default, and have concluded that fiscal policies should be defined according to
population size. The present empirical study was conducted on a sample of 1,476 local
governments, with data for the period 2009-2014, to determine the influence of
financial, socioeconomic and population factors on default risk in three types of
municipality (small, medium-sized and large). The variables analysed were those
considered relevant to the design of fiscal policies for these local governments. The
results obtained show that the factors that influence the risk of default vary according to
the size of the municipality, although some are common to all or most cases, such as
real estate taxes, vehicle taxes, financial autonomy and per capita income. The main
elements found to vary according to municipal size are overall immigration, female
immigration, female unemployment and proximity to the next elections. Our findings
show that the financial risk of local governments is affected not only by population size
but also by financial and socioeconomic variables. These results can help policy-makers
to design fiscal policies appropriate for the size of each municipality, thus contributing
to avoiding bankruptcy, cuts in public spending and tax increases. Our study findings
may be of interest to politicians, managers, fiscal authorities, central governments,
supervisory bodies, financial institutions, banks, voters, taxpayers and users of public
services.