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Analysing credit risk in large local governments: an empirical study in Spain

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Listed:
  • Juan Lara-Rubio
  • Salvador Rayo-Cantón
  • Andrés Navarro-Galera
  • Dionisio Buendia-Carrillo

Abstract

In governments throughout the world, bank lending excesses, solvency issues and worsening credit ratings have all contributed to raising risk premiums and impeding access to credit, thus provoking a major financial problem in the public sector. Accordingly, tax authorities and regulators need to analyse the causes of public sector bank debt, doing so through the joint study of idiosyncratic and systematic variables, an area that has been neglected in previous research. This paper examines idiosyncratic and systematic factors that may influence local government credit risk through an empirical study of the performance of 148 large Spanish municipalities during 2006–2011. We identify individual factors relevant to the probability of local government default (such as dependent population, per capita income and debt composition) and also determinants associated with macroeconomic developments, such as gross domestic product and the risk premium.

Suggested Citation

  • Juan Lara-Rubio & Salvador Rayo-Cantón & Andrés Navarro-Galera & Dionisio Buendia-Carrillo, 2017. "Analysing credit risk in large local governments: an empirical study in Spain," Local Government Studies, Taylor & Francis Journals, vol. 43(2), pages 194-217, March.
    • Handle: RePEc:taf:flgsxx:v:43:y:2017:i:2:p:194-217
    DOI: 10.1080/03003930.2016.1261700
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    Cited by:

    1. Dionisio Buendía-Carrillo & Juan Lara-Rubio & Andrés Navarro-Galera & María Elena Gómez-Miranda, 2020. "The impact of population size on the risk of local government default," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(5), pages 1264-1286, October.
    2. Vicente Pina & Patricia Bachiller & Lara Ripoll, 2020. "Testing the Reliability of Financial Sustainability. The Case of Spanish Local Governments," Sustainability, MDPI, vol. 12(17), pages 1-22, August.
    3. Laszlo Vasa & Szilard Hegedus & Csaba Lentner, 2021. "Debt Dynamics Among European Municipalities and Their Organizations: Comparative Analysis with Focus on Hungary," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 622-645.
    4. Krzysztof Kluza, 2017. "Risk assessment of the local government sector based on the ratio analysis and the DEA method. Evidence from Poland," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(3), pages 329-351, December.
    5. Noelia Araújo-Vila & Jose Antonio Fraiz-Brea & Arthur Filipe Araújo, 2020. "Spanish Economic-Financial Crisis: Social and Academic Interest," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 16(2), pages 135-149, November.
    6. Serena Santis, 2020. "The Demographic and Economic Determinants of Financial Sustainability: An Analysis of Italian Local Governments," Sustainability, MDPI, vol. 12(18), pages 1-16, September.

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