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Indicators of financial stability for needs of municipalities
[Indikátory finanční stability pro potřeby obcí]

Author

Listed:
  • Irena Szarowská
  • Ingrid Majerová
  • Jarmila Šebestová

Abstract

Financial stability of municipalities is an important aspect for long-term sustainable development and disproportionate debt can generate risks for their standard functioning. Although there are many methodologies for assessing the financial stability of municipalities, they are usually based on central government needs and are not used for financial management and planning. The aim of the article is to develop a set of indicators for assessing financial stability for needs of municipalities by using publicly available information. The selected indicators highlight two basic assumptions important for short and long-term budget balance and sustainability of funding. Concretely, the balance of the current budget should always be positive and the maximum debt service should not exceed the surplus of the current budget. The set of indicators includes three groups of indicators: budgetary management (7 indicators), indebtedness (8 indicators) and liquidity (3 indicators). There is a clearly defined and interpretable assessment for each indicator in terms of financial stability and potential risks.

Suggested Citation

  • Irena Szarowská & Ingrid Majerová & Jarmila Šebestová, 2018. "Indicators of financial stability for needs of municipalities [Indikátory finanční stability pro potřeby obcí]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2018(1), pages 25-45.
    • Handle: RePEc:prg:jnlcfu:v:2018:y:2018:i:1:id:508:p:25-45
    DOI: 10.18267/j.cfuc.508
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    References listed on IDEAS

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    1. Benjamin Y. Clark, 2015. "Evaluating the Validity and Reliability of the Financial Condition Index for Local Governments," Public Budgeting & Finance, Wiley Blackwell, vol. 35(2), pages 66-88, June.
    2. Daniel Covitz & Nellie Liang & Tobias Adrian, 2015. "Financial Stability Monitoring," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 357-395, December.
    3. Evgenia Gorina & Craig Maher & Marc Joffe, 2018. "Local Fiscal Distress: Measurement and Prediction," Public Budgeting & Finance, Wiley Blackwell, vol. 38(1), pages 72-94, March.
    4. Samuel B. Stone & Akheil Singla & James Comeaux & Charlotte Kirschner, 2015. "A Comparison of Financial Indicators: The Case of Detroit," Public Budgeting & Finance, Wiley Blackwell, vol. 35(4), pages 90-111, December.
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    More about this item

    Keywords

    Municipality; Budget; Financial stability; Indebtness; Liquidity; Obec; Rozpočet; Finanční stabilita; Zadluženost; Likvidita;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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