Causes of financial distress of Portuguese municipalities: empirical evidence
by Flora Cunha Lobo; Pedro Ramos; Oscar Lourenco
International Journal of Monetary Economics and Finance (IJMEF), Vol. 4, No. 4, 2011

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.

Online publication date: Thu, 27-Oct-2011

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