To read the full version of this content please select one of the options below:

The issue of sustainability in a highly centrally regulated fiscal model of local governments: an empirical study

András Bethlendi (Department of Finance, the Faculty of Economic and Social Sciences, Budapest University of Technology and Economics , Budapest, Hungary and Faculty of Public Governance and International Studies, National University of Public Service , Budapest, Hungary)
Csaba Lentner (Faculty of Public Governance and International Studies, National University of Public Service , Budapest, Hungary)
László Nagy (Department of Finance, the Faculty of Economic and Social Sciences, Budapest University of Technology and Economics , Budapest, Hungary)

Accounting Research Journal

ISSN: 1030-9616

Article publication date: 22 September 2020

Issue publication date: 2 December 2020

Downloads
195

Abstract

Purpose

This study aims to assess the sustainability of local governments in a highly centrally regulated fiscal model.

Design/methodology/approach

This paper uses a novel approach, a broad data set of almost 3,200 local governments and network methods. This paper analyses financial data from annual reports and other socio-economic sources using cluster analysis.

Findings

Even in this model, local governments show significant differences in terms of long-term sustainability. Investments do not compensate for the depreciation of tangible assets at a significant part of local governments. A specific type of soft budget constraint can be noticed. Heads of local governments do not “play” for subsequent ad hoc bailouts by the central government, but rather engage themselves in political competition for development subsidies. A further finding of this study is that shrinking populations itself does not explain the differences in local governments’ financial management.

Research limitations/implications

Further directions of research include the application of an extended approach to sustainability that gives an account of the availability and quality of local services, as well as aims to identify the qualitative social characteristics (success criteria) of the local government financial management.

Practical implications

The findings can be useful for policymakers, state audit offices, auditors, voters, users of public services and other stakeholders.

Social implications

The paper argues in favour of moving away from the financial balance in its narrow sense to a long-term and broader term of financial sustainability.

Originality/value

The findings provide new empirical evidence about the accounting-based measurement of financial sustainability in local governments.

Keywords

Citation

Bethlendi, A., Lentner, C. and Nagy, L. (2020), "The issue of sustainability in a highly centrally regulated fiscal model of local governments: an empirical study", Accounting Research Journal, Vol. 33 No. 6, pp. 669-689. https://doi.org/10.1108/ARJ-04-2020-0076

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited