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What Drives Municipalities Default Risk?

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  • Eymen Errais

Abstract

Municipal credit markets have been slow to develop in emerging markets because municipal lending risks have been difficult to identify. In this paper, we analyze the factors that impact municipalities default risks. Our data set incorporates all the 264 Tunisian Municipalities and spans a period over 7 years (2010-2016). Our methodology is based on logistic regressions ran on 40 independent variables. Our results show that factors driving good debt management could be restricted to 8 factors: Gross Savings Rate, Debt Ratio, Financial Autonomy Ratio, Level of Real Estate Tax, Budgetary Stiffness Rate, Average Debt Ratio, Average Issue Date and Average Interest Rate . The model shows strong efficiency and reliable predictive power.

Suggested Citation

  • Eymen Errais, 2019. "What Drives Municipalities Default Risk?," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(3), pages 49-57, March.
    • Handle: RePEc:ibn:ijefaa:v:11:y:2019:i:3:p:49-57
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    References listed on IDEAS

    as
    1. Michael Schwert, 2017. "Municipal Bond Liquidity and Default Risk," Journal of Finance, American Finance Association, vol. 72(4), pages 1683-1722, August.
    2. Holian, Matthew & Joffe, Marc, 2013. "Assessing Municipal Bond Default Probabilities," MPRA Paper 46728, University Library of Munich, Germany.
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    More about this item

    Keywords

    local governance; default risk; debt management; credit risk factors;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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