Causes of financial distress of Portuguese municipalities: empirical evidence

Flora Cunha Lobo, Pedro Ramos and Oscar Lourenco

International Journal of Monetary Economics and Finance, 2011, vol. 4, issue 4, 390-409

Abstract: This paper analyses the factors behind the financial distress of local government in Portugal. A Probit model is used to estimate the probability of a municipality entering into a financial recovery contract, regulated by the Portuguese Local Finance Law. Empirical results indicate that both structural and non-structural factors influence local financial distress. In addition to financial management practices, financial distress is also conditioned by political variables and socio-economic factors. Municipalities ruled by mayors that belong to a right-wing party are more prone to financial distress, and some municipalities are more financially vulnerable than others because of structural circumstances.

Keywords: municipal financial distress; local indebtedness; fiscal discipline; probit models; Portugal; municipalities; local government; financial recovery; financial crisis. (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmefi:v:4:y:2011:i:4:p:390-409

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