Local Debt Burden at LAU2 Level in the EU countries
Local Debt Burden at LAU2 Level in the EU countries

Author(s): László Vértesy
Subject(s): Public Administration, Economic policy, EU-Accession / EU-DEvelopment, Public Finances
Published by: Masarykova univerzita nakladatelství
Keywords: local governments; local debt; local borrowing; public debt; debt management;
Summary/Abstract: This paper examines the magnitude and relevance of local debt burden at a subnational: LAU2 level, for identifying some relevant correlation and country groups. According to the official Eurostat figures the total debt amount of the local governments worth € 847.4 billion in 2017, which is 6.7 % of the EU28’s general government gross debt. Therefore, public debt is still a quotidian topic in economics, most countries worldwide face its management challenges. The research is based on legal and economic methodology with quantitative analysis, because of the cross-disciplinary nature of the topic. An overwhelming proportion (64.8 %) of it is denominated in loans, since it is simpler and easier for municipalities to borrow money from the financial intermediaries, and they are able to provide suitable coverages. The confidence in local bonds is low, for temporary financial difficulties the account payable solution is preferred. In some Mediterranean and Nordic countries state or local government-owned specialised financial institutions were established; and despite of creation at different times, they share many similarities. Since the different structures and the level of fragmentation of decentralization, relevant categories for the indebtedness may not be identified, only loose connection can be established. Generally, in countries with larger and more populous LAU2s with greater fiscal autonomy, the sum of the local debt is not so high, but for a single municipality or for a local citizen, it still means a higher burden. Parallel to this, a public administration with small municipalities bears a larger total sum, but this is dispersed among the numerous cities and villages, therefore the debt burden for a single local authority is not significant.

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