LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
Vol. 15, No. 1, pp. 43 - 66, Janua y 2017
Do Poli ical Fac o s A ec he Risk o Local
Go e nmen De aul ? Recen E idence om Spain
ANDRÉS NAVARRO-GALERA, DIONISIO BUENDÍA-CARRILLO, JUAN LARA-RUBIO,
SALVADOR RAYO-CANTÓN
3
ABSTRACT High le els o deb , p o oked by a si ua ion o economic and inancial
c isis, cons i u e a majo h ea o he inancial sus ainabili y o go e nmen s in he
eu o zone and in many o he pa s o he wo ld. This delica e s a e o public inances
also a ec s local go e nmen s and has led esea che s o s udy he a iables ha
in luence he olume o bank deb . Howe e , ew ha e speci ically analysed he
causes o local go e nmen de aul , al hough i has p o oked spending cu backs and
ax inc eases in many coun ies. The aim o his pape is o examine poli ical ac o s
ha may inc ease he isk o local go e nmen de aul . Using a logi model o panel
da a and applying he Basel II ules, we s udied he inancial pe o mance o la ge
local Spanish go e nmen s o he pe iod 2006-2011. Ou empi ical indings e eal
ou poli ical ac o s ha may inc ease he isk o de aul ( he mayo ’sknowledge o
inance and economics, a low pe cen age o women councillo s, a le -wing
ideology and ideological alignmen wi h he egional go e nmen ).These indings
a e o g ea in e es o s akeholde s who may be a ec ed by local go e nmen
de aul , including o e s, axpaye s, use s o public se ices, manage s,
policymake s, inancial ins i u ions, c edi o s, iscal au ho i ies and cen al
go e nmen .
KEYWORDS: • de aul isk • c edi isk • bank c edi • poli ical ac o s • local
go e nmen s
CORRESPONDENCE ADDRESS: And és Na a o-Gale a, Ph.D., P o esso , Uni e si y o
G anada, Facul y o Economics and Business, Depa men o Accoun ing and Finance,
Campus de Ca uja, s/n, 18071 – G anada, Spain, email: angale[email p o ec ed]. Dionisio
Buendía-Ca illo, Ph.D., Associa e P o esso , Uni e si y o G anada, Facul y o
Economics and Business, Depa men o Accoun ing and Finance, Campus de Ca uja,
s/n, 18071 – G anada, Spain, email: dbuendia@ug .es. Juan La a-Rubio, Ph.D.,
Uni e si y o G anada, Facul y o Economics and Business, Depa men o Accoun ing
and Finance, Campus de Ca uja, s/n, 18071 – G anada, Spain, email: juanla a@ug .es.
Sal ado Rayo-Can ón, Ph.D., Uni e si y o G anada, Facul y o Economics and
Business, Depa men o Accoun ing and Finance, Campus de Ca uja, s/n, 18071 –
G anada, Spain, email: s ayo@ug .es.
DOI 10.4335/15.1.43-66(2017)
ISSN 1581-5374 P in /1855-363X Online © 2017 Lex localis
A ailable online a h p://jou nal.lex-localis.p ess.
44
LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
A. Na a o-Gale a, D. Buendía-Ca illo, J. La a-Rubio, S. Rayo-Can ón: Do
Poli ical Fac o s A ec he Risk o Local Go e nmen De aul ? Recen E idence
om Spain
1 In oduc ion
The de e io a ion o public inances du ing he economic c isis has led a ious
in e na ional o ganisa ions o iden i y high le els o deb as a majo h ea o he
inancial heal h o go e nmen s (EU 2015; IMF 2014; Wo ldwide Bank G oup
2014). Acco ding o nume ous in e na ional p onouncemen s, as a esul o he
c isis ising go e nmen deb may endange he iabili y and inancial
sus ainabili y o public se ices (NAO 2013; IFAC 2013; FASAB 2014; LGA
2015).
Acco dingly, high le els o deb and he ensuing isk o go e nmen de aul
cons i u e an issue o majo conce n in he eu ozone (EU 2012; EC 2011) and in
many o he pa s o he wo ld (US Depa men o he T easu y 2013; FASAB
2014, NAO 2013; IFAC 2013; FASAB 2014; USAID 2011). Du ing he c isis,
go e nmen de aul s p o oked downg ades by c edi a ing agencies, inc eased
isk p emiums, public spending cu s and ax inc eases in coun ies such as
Po ugal, G eece, I aly, I eland and Spain (Na a o e al. 2015; Bas ida e al. 2014;
Moody’s 2013).
In iew o his c i ical si ua ion, esea che s ha e s udied he na u e o he bank
loans ob ained by public ins i u ions in many di e en coun ies and con ex s, and
ha e iden i ied a ious demog aphic, socioeconomic and inancial explana o y
ac o s (Balague -Coll e al. 2015; Mahda i and Ho on 2014; Capalbo and G ossi
2014; Bas ida e al. 2014; Cabalei o e al. 2013; Pé ez e al. 2013; Guillamón e al.
2011; León e al. 2010).
Howe e , despi e he se ious di icul ies encoun e ed by some go e nmen s in
epaying hei loans (IMF 2014; Wo ldwide Bank G oup 2014; EU 2015 2012) as
ye li le esea ch has been conduc ed in o de e mining he ac o s ha in luence
he isk o de aul (Gómez and He e o 2011). Some au ho s ha e iden i ied
inancial and demog aphic a iables as de e minan s o go e nmen al iscal s ess
2012; Ca and Ka uppusamy 2010; Beni o e al. 2010) and inancial/ iscal,
socioeconomics and poli ical a iables as explaining ac o s o le els o deb in
local go e nmen s. The p e ious esea ch did no examine he associa ion o
poli ical ac o s and de aul in local go e nmen s. Ne e heless, p e ious esea ch
has indica ed he imeliness and in e es o analysing he in luence o poli ical
ac o s on he inancial managemen by local go e nmen s du ing he c isis pe iod
(Na a o e al. 2015; Balague -Coll e al. 2015; B usca e al., 2015; Rod íguez e
al., 2014; Bas ida e al., 2012; Geys and Re elli 2011; Gómez and He e o 2011).
The aim o his pape is o examine whe he poli ical ac o s con ibu e o
inc easing he isk o local go e nmen de aul . To do so, we analyse a iables
ela ed o he mayo ’s p o ile, ha o he go e nmen and poli ical en i onmen . In
LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
A. Na a o-Gale a, D. Buendía-Ca illo, J. La a-Rubio, S. Rayo-Can ón: Do
Poli ical Fac o s A ec he Risk o Local Go e nmen De aul ? Recen
E idence om Spain
45
iew o he insol ency p oblems acing many Eu opean local go e nmen s, his
esea ch could be o in e es o o e s, inancial manage s, policymake s,
c edi o s, axpaye s, use s o public se ices, banks, iscal au ho i ies and o he
s akeholde s. Ou indings p o ide in o ma ion ha is ele an o decision making
in a eas such as o ing, inancial planning, loans, paymen de e als, he inancial
sus ainabili y o public se ices and axa ion. In pa icula , analysis o he poli ical
ac o s agg a a ing he isk o de aul is e y impo an o ci izens, as o e s need
o know whe he hei choice o poli ical pa y will a ec he sol ency o he local
go e nmen and, he e o e, may p o oke cu s in go e nmen spending o ax
inc eases as necessa y policies o epay loans and o ensu e he iabili y o public
se ices.
Ou empi ical s udy was conduc ed wi h espec o 148 la ge municipali ies in
Spain, o he pe iod 2006-2011, using a panel da a logi analysis o he poli ical
a iables associa ed wi h he p obabili y o de aul , calcula ed acco ding o he
New Basel Capi al Acco d o Basel II ules (BCBS 2006). This pa icula sample
was selec ed because, du ing he inancial and economic c isis, la ge local and
egional go e nmen s in Spain p esen ed le els o deb and o gaps be ween
income and spending ha we e among he highes o all he coun ies in he
eu ozone (EU 2012; Moody’s 2013). Mo eo e , in Spain, ecen opinion polls
indica e ha he poli ical class is conside ed o be one o he main p oblems acing
he coun y (Cen e o Sociological Resea ch, 2014).
2 Measu ing he isk o local go e nmen de aul by he Basel II ules
The iden i ica ion o poli ical ac o s ha a e ele an o he isk o local
go e nmen de aul is a con ibu ion o p e ious esea ch in his ield (Geys and
Re elli, 2011; Gómez and He e o, 2011; Na a o e al., 2015). Taking in o
accoun ha he banks a e majo c edi o s o local go e nmen s, such a
con ibu ion should ocus on he analysis o bank loans, he high olume o which
is o g ea conce n o ci izens, o e s, axpaye s, inancial manage s,
policymake s, inancial ins i u ions and o he s akeholde s (IMF 2014; Na a o e
al. 2015; Bas ida e al. 2015; Cabalei o and Buch, 2015; Moody’s 2013).
Acco dingly, ou s udy examines he bank c edi isk o local go e nmen s as an
indica o o hei de aul isk which is assessed in e ms o he de aul p obabili y
o each local go e nmen . Following Cas én e al. (2010)and Go dy (2003) we
analyse c edi isk in e ms o he de aul p obabili y as his pa ame e p o ides
wa ning signs o ulne abili y and can enable local go e nmen s o o esee and
p e en a inancial deb c isis (Agnelloand Sousa 2011). Mo eo e , he s udy o
loan isk can p o ide use ul in o ma ion o o e s o choose a go e nmen ha
will adop policies o a oid de aul isk and he e o e unpopula measu es such as
spending cu s o ax inc eases.
46
LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
A. Na a o-Gale a, D. Buendía-Ca illo, J. La a-Rubio, S. Rayo-Can ón: Do
Poli ical Fac o s A ec he Risk o Local Go e nmen De aul ? Recen E idence
om Spain
This analysis is especially e ealing and ele an o coun ies like Spain whe e he
c isis caused by he housing bubble a ec ed he unc ioning o he banking sys em
and had a majo impac on he public sec o . Du ing he c isis local go e nmen
e enues om cons uc ion ac i i y ell sha ply and social spending inc eased
p o oking la ge budge de ici s and ising bank deb leading o liquidi y p oblems
and insol ency downg ading by c edi a ing agencies and di icul ies in he c edi
ma ke (Guillamón e al. 2011; Bas ida e al. 2014; Na a o e al. 2015).
The isk o bank c edi de aul by local go e nmen s is usually measu ed by
e e ence o he Basel II ules (BCBS 2006) acco ding o which he g ea e he
c edi isk he s ic e he capi al equi emen s ha should be applied as a
p o ision agains he isk o de aul . Ci cula 3/2008 o 22 May issued by he
Bank o Spain in 2008 adap ed he Spanish ules in acco dance wi h Basel II
se ing capi al equi emen s o banks. Local go e nmen deb is o c ucial
impo ance in de e mining hese equi emen s due o he conside able exposu e o
isk p esen ed in many cases.
The adap a ion o he Basel II ules o he Spanish legal amewo k p o ides wo
me hods o es ima ing c edi isk. In he i s known as he s anda dised app oach
local go e nmen s a e included in he ca ego y Exposu es o egional go e nmen s
and local au ho i ies and he judgmen o ex e nal a ing agencies (such as S&P
Moody’s Fi ch and DBRS) is used o assess c edi isk weigh ing ac o s and
capi al equi emen s. Unde he second me hod – he in e nal a ings-based
app oach – local go e nmen s a e included in he Ins i u ions ca ego y o isk
exposu e and he de aul p obabili y he loss gi en de aul he isk weigh ing
ac o s he maximum loss ha a loan migh p oduce and he alue a isk o a
99.99% con idence le el a e calcula ed.
Unde Basel II de aul p obabili y is calcula ed on he basis o he bank’s exposu e
o local go e nmen de aul . The c edi isk p emium is he sum o he isk
p emiums o expec ed loss and o unexpec ed loss. The i s o hese elemen s is
de e mined by pa ame e s se ou in he Basel II ules including de aul p obabili y
and se e i y.
In summa y unde he Basel II ules he de aul isk o local go e nmen s is
measu ed by es ima ing he c edi isk based on de aul p obabili y. This
conside a ion is o g ea in e es in s udies o he policies adop ed by go e nmen s
subjec o high le els o bank deb . A eliable measu e o local go e nmen de aul
isk enables ci izens o e s c edi o s manage s and o he s akeholde s o de e mine
whe he he cha ac e is ics and p o iles o hei poli ical ep esen a i es imply a
isk o de aul which would unde mine he inancial heal h o he local
go e nmen and h ea en he iabili y and inancial sus ainabili y o public
se ices.
LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
A. Na a o-Gale a, D. Buendía-Ca illo, J. La a-Rubio, S. Rayo-Can ón: Do
Poli ical Fac o s A ec he Risk o Local Go e nmen De aul ? Recen
E idence om Spain
47
3 Resea ch me hodology
3.1 Sample selec ion
Ou empi ical s udy ocuses on la ge local go e nmen s in Spain. This coun y
was selec ed o analysis because ins i u ions (EU 2012; IMF 2014) and p e ious
esea ch pape s (Na a o e al. 2015;Balague -Coll e al. 2015;Bas ida e al. 2014)
ha e concluded ha he bank deb o Spanish local and egional go e nmen s is
e y la ge and ha he e is a wo ying gap be ween income and expendi u e. This
c i ical inancial si ua ion which has p o oked majo cu s in public se ices has
led he cen al go e nmen o adop legisla ion such as he Local Go e nmen
Ra ionalisa ion and Sus ainabili y Ac No. 27/2013 and he Budge a y S abili y
and Financial Sus ainabili y Ac No. 2/2012. I has been a gued ha he analysis
o ac o s ele an o public deb is especially in e es ing in coun ies like Spain so
ha policy make s can lea n om he expe ience o he c isis and hus a oid such
inancial p oblems in he u u e (Alca az e al. 2014; Na a o e al. 2015).
Ou s udy sample is comp ised o la ge local go e nmen s in line wi h p e ious
s udies o municipal inance (Alca az Quiles e al. 2014; Bas ida e al. 2014;
Guillamón e al. 2011). Following he c i e ia o he Local Go e nmen
Mode nisa ion Ac No. 57/2003 we selec ed 148 municipali ies each wi h mo e
han 50000 inhabi an s aking da a o he pe iod 2006-2011.
This sample is app op ia e o ou esea ch goal o he ollowing easons: a) we
conside ed a s udy pe iod anging om h ee yea s be o e he onse o he c isis
un il h ee yea s a e his ime, ollowing he app oach adop ed by au ho s as
Pé ez e al. (2013) and Na a o e al. (2015); b) he in oduc ion o he Local
Go e nmen Ra ionalisa ion and Sus ainabili y Ac No. 27/2013 s a es ha la ge
local go e nmen s ace signi ican p oblems o insol ency and sho comings in
hei inancial managemen ; c) hese go e nmen s ha e a la ge olume o bank
deb (Bank o Spain 2014; Na a o e al. 2015); d) he EU (2012) and c edi a ing
agencies such as Moody’s (2013) ha e obse ed ha he inancial si ua ion o
la ge local go e nmen s in Spain is among he mos wo ying in he eu ozone; e)
hese go e nmen s accoun o o e 38.7% o all local spending and ep esen
abou 56% o he Spanish popula ion p o iding a wide ange o se ices including
public anspo sewage ea men was e disposal and spo s acili ies (IGAE
2014;FundaciónLa Caixa 2014); ) he accoun ing sys em used by la ge local
go e nmen s in Spain is conside ed o be mo e e ealing and comple e han ha
employed by smalle municipali ies which con ibu es o he ep esen a i eness
and consis ency o he inancial da a conside ed (Minis y o Finance and Public
Adminis a ion 2013) .

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LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
A. Na a o-Gale a, D. Buendía-Ca illo, J. La a-Rubio, S. Rayo-Can ón: Do
Poli ical Fac o s A ec he Risk o Local Go e nmen De aul ? Recen E idence
om Spain
3.2 Dependen a iable
Acco ding o he Basel II ules and Ci cula 3/2008 o he Bank o Spain a loan o
local go e nmen is conside ed o be in de aul when he e is easonable doub ha
he municipali y can mee i s inancial obliga ions. Among o he ci cums ances
wo sening sol ency is e ealed by an inadequa e economic o inancial s uc u e
nega i e equi y con inuing losses gene alised la e paymen s insu icien cash low
o pay deb s inabili y o ob ain addi ional inancing o a si ua ion o o icial
ecei e ship. The e o e, and ollowing he c i e ia se ou in he co esponding
Spanish legisla ion and in p e ious esea ch pape s on he inancial analysis o
local go e nmen s (Moody’s 2013 2012;Na a o e al. 2015; Pé ez e al. 2013) we
conside a local go e nmen o be in de aul when i mee s a leas one o he
condi ions o inancial indica o s s ipula ed below:
- De aul 1: Cash su plus o o e heads<0 (Index o cash su plus).
Add essed in A icle 193 o he Re ised Tex o he Local Go e nmen
Finance Ac . Fo in o ma ion on his i em we consul ed a ious sou ces in
he ollowing o de o p e e ence: (a) he Cou o Audi o s h ough i s
accoun abili y websi e; (b) he ex e nal audi body o he au onomous
communi y o which he municipali y belongs; (c) he local au ho i y’s own
websi e.
- De aul 2: Legal bo owing limi (capi al o cu en deb ) exceeding 110%
o cu en e enues as conside ed in A icle 53.2 o he abo e Ac . Fo
in o ma ion on his a iable we consul ed he i ual o ice o local
au ho i ies adminis e ed by he Minis y o Finance and Public
Adminis a ion.
- De aul 3: Sol ency (cu en asse s/cu en liabili ies) <1. This indica o o
sol ency is commonly used in inancial analysis. Fo in o ma ion on his
a iable we consul ed he same sou ces o in o ma ion as o De aul
Condi ion 1.
- De aul 4: G oss budge sa ings (cu en e enue – cu en expendi u e) <0
as conside ed in A icle 53.1 o he abo e Ac . Fo in o ma ion on his
a iable we consul ed he abo e-men ioned i ual o ice o inancial
coo dina ion wi h local au ho i ies.
The e o e, ou dependen a iable is he de aul p obabili y o he local
go e nmen in ques ion calcula ed using he Basel II ules acco ding o he ou
inancial indica o s s ipula ed abo e. As well as ollowing he Spanish ules on
deb limi s o local go e nmen s we chose hese ou indica o s o de aul because
hey a e in line wi h he ecommenda ions o he BCBS (2006) he In e na ional
Con e gence o Capi al Measu emen and Capi al S anda ds o he Bank o
In e na ional Se lemen s (June 2004) and Ci cula 3/2008 including local
go e nmen s wi h espec o loan exposu e o cen al go e nmen s cen al bank
ins i u ions and p i a e companies. As in he model c ea ed by Spanish legisla ion
LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
A. Na a o-Gale a, D. Buendía-Ca illo, J. La a-Rubio, S. Rayo-Can ón: Do
Poli ical Fac o s A ec he Risk o Local Go e nmen De aul ? Recen
E idence om Spain
49
he i s wo o hese ex s conside ha he e is a easonable doub as o whe he
inancial obliga ions will be me when among o he ci cums ances he deb o ’s
sol ency wo sens as e ealed by an inadequa e economic o inancial s uc u e
nega i e equi y con inuing losses gene alised la e paymen s insu icien cash low
o pay deb s inabili y o ob ain addi ional inancing o a si ua ion o o icial
ecei e ship.
3.3 Independen a iables
P e ious s udies (B usca e al.,2015;Cabalei o and Buch, 2015; Beni o e al.,
2012; Gómez and He e o 2011; Geys and Re elli 2011; Ga cía e al. 2011;
Beland Mi alles 2010; Beni o e al. 2009) ha e shown ha poli ical ac o s can
a ec he inancial beha iou o go e nmen s. In his espec h ee speci ic ypes
o a iables ha e been iden i ied: he mayo ’s p o ile ha o he go e nmen and
he consolida ion o he poli ical en i onmen . The pa ame e s add essed in he
mayo ’s p o ile include pe sonal cha ac e is ics such as gende and he le el and
ype o educa ion ecei ed. The p o ile o he go e nmen e e s o ac o s such as
poli ical compe i ion and agmen a ion he pe cen age o women councillo s and
he s eng h and ideology o he go e ning pa y. Finally, he consolida ion o he
poli ical en i onmen e e s o he con ex in which local go e nmen decisions
a e adop ed including i s s abili y he ideological alignmen be ween local
go e nmen and egional and s a e go e nmen s and he numbe o yea s he
go e ning pa y has been in powe . O he poli ical a iables such as he age o he
mayo o councillo s as well as hei p e ious expe ience could ha e been used,
bu such in o ma ion was no a ailable o he local go e nmen s in ou sample.
Wi h espec o he p o ile o he mayo a iables such as gende and educa ional
backg ound ha e been s udied in p e ious esea ch. As indica ed by Ryan e al.
(2005) i may be use ul o obse e he di e ences in leade ship s yles be ween
men and women and hei implica ions o inno a ion in local go e nmen s. On
he o he hand, Massolo (1991) and Guillamón e al. (2011) ound no e idence o
any in luence o he mayo ’s gende on he e olu ion o municipal deb . Howe e ,
hese s udies did no analyse he de aul isk o o he cha ac e is ics o he mayo
and so o his empi ical s udy we chose o include h ee possible explana o y
a iables wi h espec o he mayo : gende (male/ emale) le el o academic
s udies (uni e si y g adua e o o he wise) and academic p o ile (s udies ela ed o
economics o o he wise).
Secondly i e a iables we e selec ed o ep esen he poli ical p o ile o he local
go e nmen . As conce ns poli ical compe i ion (go e nmen by absolu e majo i y
o in coali ion) p e ious s udies ha e epo ed con lic ing indings. Some au ho s
(Beni o e al. 2012; Beni o e al. 2010; Ashwo h e al. 2005) ha e concluded ha
poli ical compe i ion ends o inc ease he ax bu den de ici and go e nmen deb
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LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
A. Na a o-Gale a, D. Buendía-Ca illo, J. La a-Rubio, S. Rayo-Can ón: Do
Poli ical Fac o s A ec he Risk o Local Go e nmen De aul ? Recen E idence
om Spain
while educing a ailable esou ces he eby agg a a ing he de aul isk. In con as
Guillamón e al. (2011) ound no e idence o any such ela ionship wi h he
olume o go e nmen deb .
In addi ion, nume ous s udies (Cabalei o and Buch, 2015; Ga cía e al. 2011;
Guillamón e al. 2011; Lago and Lago 2009; Ryan e al. 2005; Ashwo h e al.
2005) ha e concluded ha g ea e poli ical s eng h is associa ed wi h highe
le els o deb and de ici . Howe e , Galli and Pado ano (2002) ound ha less
poli ical s eng h leads o mo e bo owing and he e o e g ea e di icul y in
mee ing loan ma u i ies. I would he e o e be in e es ing o examine whe he he
poli ical s eng h o local go e nmen a ec s i s de aul isk. To do so we ollow
he app oach adop ed in p e ious s udies (Ga cia e al. 2011; Guillamón e al.
2011; Ashwo h e al. 2005) using he He indahl Index which is calcula ed by
di iding he numbe o councillo s belonging o he go e ning pa y by he o al
numbe o councillo s in he municipal co po a ion.
The deg ee o poli ical agmen a ion is ano he a iable ha has been analysed.
Geys and Re elli (2011) Vlke ink and Hann (2001) and Roubini and Sachs (1989)
ha e concluded ha inc eased agmen a ion can cause budge de ici s and
he e o e agg a a e municipal deb . Acco dingly, we s udy he speci ic in luence
o his a iable on de aul isk measu ing i as he a io be ween he numbe o
pa ies wi h sea s in he municipal assembly and he o al numbe o councillo s.
Ano he aspec o poli ical in e es is ha o gende . I has been epo ed
(Pio owsky and Van Ryzin 2007; Jennings 1983) ha male councillo s ha e a
mo e ac i e poli ical commi men han hei emale coun e pa s. Fu he mo e,
Geys and Re elli(2011) concluded ha a highe p opo ion o women in he
go e ning pa y is associa ed wi h highe ax e enues al hough Guillamón e al.
(2011) ound no e idence o a ela ionship be ween councillo s’ gende and he
olume o deb . Al hough hese s udies did no analyse he in luence o he
pe cen age o women councillo s on he isk o municipal de aul hei indings
sugges ha his a iable may be o in e es which led us o selec i o analysis.
Ano he a iable ha has been analysed in p e ious esea ch is he poli ical
ideology o he go e ning pa y (conse a i e/p og essi e) (B usca e al., 2015;
Cabalei o and Buch, 2015; Bas ida e al., 2012). In his espec Balague -Coll e
al. (2015),Ga cia e al. (2011), Bel and Mi alles (2010) and Tellie (2006) all
concluded ha le -wing pa ies a e mo e likely han cen is o igh -wing ones o
adop expansiona y spending policies hus leading o inc eased bo owing
equi emen s and g ea e di icul ies in mee ing epaymen obliga ions. Howe e ,
Ashwo h e al. (2005) indica ed ha le -wing pa ies end o bo ow less while
o he au ho s ha e ound no e idence o any in luence o poli ical ideology on
spending (Geys and Re elli 2011) o on he le el o de ici (Lago and Lago 2009).
LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
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Poli ical Fac o s A ec he Risk o Local Go e nmen De aul ? Recen
E idence om Spain
51
As a complemen o he abo e esea ch we conside ed i in e es ing o s udy
speci ically whe he a gi en poli ical ideology migh agg a a e he de aul isk o
local go e nmen s as his pa icula in luence has no been analysed p e iously.
As ega ds a iables ela ed o he consolida ion o he poli ical en i onmen Solé-
Ollé and So ibas-Na a o (2008) epo ed he exis ence o a posi i e ela ionship
be ween ideological alignmen be ween di e en le els o go e nmen (cen al
egional and local) and he olume o ans e s ecei ed which could lessen he
need o bo owing and hus educe he isk o insol ency. On he o he hand,
Bas ida e al. (2009) measu ed a nega i e in luence o his ideological alignmen
on spending and ax e enues while Gómez and He e o (2011) ound ha his
a iable had no impac on inancing a di e en le els o go e nmen . The e o e,
al hough p e ious esea ch indings a e no conclusi e hey highligh he
impo ance o s udying he in luence o ideological alignmen on de aul isk.
Acco dingly, we selec ed wo a iables o analysis: ideological alignmen
be ween local and egional go e nmen and ideological alignmen be ween local
and cen al go e nmen .
Finally, wi h espec o he pe manence o he go e ning pa y in powe Bunch
(1991) concluded ha his a iable was posi i ely associa ed wi h he olume o
deb while G illi e al. (1991) eached he opposi e conclusion. In iew o hese
con lic ing esul s we decided o s udy he ela ion be ween his a iable and he
isk o local go e nmen de aul .
The abo e conside a ions a e summa ised in Table 1 which lis s he en poli ical
a iables analysed in ou empi ical s udy indica ing how hey we e measu ed he
da a sou ce and he expec ed sign o he s a is ical ela ion ob ained o he
p obabili y o de aul acco ding o p e ious esea ch indings. Based on
au ho i a i e p onouncemen s acco ding o which deb spending and income can
be conside ed as in e ela ed dimensions o go e nmen sus ainabili y (LGA 2015;
FASAB 2014; IFAC 2013; NAO 2013)we hypo hesise ha a g ea e olume o
deb and/o budge de ici inc eased cos s and educed e enues migh all inc ease
he isk o local go e nmen de aul as hey would educe he esou ces a ailable
o mee ma u ing bank loans hus a ou ing insol ency.
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om Spain
a iable was posi i ely ela ed wi h ax e enues meaning ha mo e esou ces
would be a ailable o mee loan paymen s hus educing he isk o de aul .
Fu he mo e, al hough Guillamón e al. (2011) did no obse e a ela ion be ween
his a iable and he olume o deb ou esul s show ha i does ha e a speci ic
in luence on he de aul isk o he exis ing bank deb . This inding leads us o
deduce ha he inclusion o mo e women in he local go e nmen co po a ion
would help consolida e municipal inances as i would educe he de aul isk and
does no appea o inc ease he olume o deb .
The IDEO a iable (ideology o he go e ning pa y: p og essi e o conse a i e)
is also signi ican (+0.535823)and i s sign is in acco dance wi h ha p oposed in
p e ious esea ch indica ing ha p og essi e go e nmen s ha e a g ea e de aul
p obabili y han conse a i e ones and he e o e a e mo e likely o p esen de aul
isk.
As spending and deb a e wo essen ial dimensions o inancial sus ainabili y
(IFAC 2013; FASAB 2014; LGA 2015) his esul ep esen s a new con ibu ion
o knowledge in his ield. Va ious au ho s ha e concluded ha he inancial
pe o mance o p og essi e go e nmen s can p o oke an inc ease in he olume o
spending (Bel and Mi alles 2010; Bas ida e al. 2009; Tellie 2006) and deb
(Balague -Coll e al. 2015; Ga cía e al. 2011;Beni o and Bas ida 2004). Ou
esul s de elop he abo e indings by p o iding speci ic e idence ha he policies
o le -wing pa ies as well as aising le els o spending and deb may also lead o
highe le els o de aul isk.
The REG a iable (ideological alignmen be ween he go e ning pa y in local
go e nmen and ha in he egional go e nmen )is shown o ha e a posi i e
in luence on de aul p obabili y wi h a alue o +0.813490. The posi i e sign o
his coe icien sugges s ha his ideological alignmen is associa ed wi h an
inc eased isk o local go e nmen de aul possibly due o less p uden beha iou
by local manage s elying on inancial assis ance om he egional go e nmen .
This esul which has a con a y sign o ha expec ed (see Table 1)is a new
inding con adic ing p e ious s udies acco ding o which go e nmen s ha a e
ideologically aligned spend less(Bas ida e al. 2009) and ecei e mo e income in
he o m o capi al ans e s (Solé-Ollé and So ibas-Na a o 2008) han
go e nmen s whose ideology con lic s wi h ha o he egional go e nmen .
We ob ained no empi ical e idence o any in luence o he ollowing poli ical
a iables which acco ding o p io esea ch migh ha e been signi ican : he
mayo ’s gende and comple ion o o he wise o uni e si y s udies (Guillamón e
al. 2011; Massolo 1991);poli ical compe i ion (Ashwo h e al. 2005);
agmen a ion and poli ical s eng h (Ga cía e al. 2011);ideological alignmen

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E idence om Spain
59
be ween local go e nmen and cen al go e nmen (Guillamón e al. 2011; Bas ida
e al. 2009; Solé-Ollé and So ibas-Na a o 2008); and numbe o yea s ha he
same poli ical pa y has been in powe (Bunch 1991; G ili e al. 1991). These
indings indica e ha policy decisions by go e nmen s ha lead o highe le els o
deb and spending do no necessa ily con ibu e o an inc eased isk o de aul as
he ac o s in luencing he de aul p obabili y do no always coincide wi h hose
which in luence bo owing and spending.
Finally, as ega ds he goodness o i he Wald s a is ic highligh s he join
signi icance o he a iables included in he model as i equi es us o ejec he
null hypo hesis ha he coe icien s a e equal o ze o. Fu he mo e, he esul s o
he Hausman es (1978) con i m ha he model mus be es ima ed by andom
e ec s and no by ixed e ec s as i es ablishes he null hypo hesis ha he e is a
co ela ion be ween he la en e ec s (o numbe o obse a ions) and he
p edic o s included in he model.
F om he co ela ion ma ix shown in Table 3 i can be seen ha he co ela ions
among he explana o y a iables included in he inal model a e e y small which
con i ms ha he e is no ela ionship among hese a iables ha would accoun o
he e en s udied. We conclude he e o e ha he esul s ob ained a e obus and
eliable.
Table 3: Co ela ion ma ix
ECO
COUNw
IDEO
REG
ECO
1.0000
COUNw
0.0602
1.0000
IDEO
0.0836
-0.0994
1.0000
REG
0.0117
0.0513
0.2485
1.0000
As can be seen in Figu e 1 he ROC ( ecei e ope a ing cha ac e is ic) cu e o he
model app oaches he uppe igh co ne o he g aph which con i ms ha he
model disc imina es su icien ly well be ween he wo g oups o local
go e nmen .
60
LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
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Poli ical Fac o s A ec he Risk o Local Go e nmen De aul ? Recen E idence
om Spain
Figu e 1: ROC Cu e
ROC A ea
S d. E .
Asymp o ic No mal
95% con . in e al
0.7568
0.0249
0.7293
0.7828
The classi ica ion ma ix i.e. he able o es ima ed e sus obse ed alues (Table
4) shows he deg ee o accu acy o he classi ica ion ob ained. I can be seen ha
o an op imal cu -o o 0.44 an accu acy o 69.26% is ob ained in he co ec
classi ica ion o he da abase i ems con i ming he accep able le el o p edic i e
accu acy achie ed.
Table 4: Classi ica ion ma ix (pe cen )
Obse .
P edic ion
Y
Co ec
pe cen age
Non-De aul
De aul
Y
Non- De aul
266
136
66.17
De aul
137
349
71.81
O e all pe cen age
69.26
Op imal cu -o : 0.44. Sens.: 66.00%; Spec.: 71.96%
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E idence om Spain
61
5 Conclusions
In he eu ozone and in many o he pa s o he wo ld he economic c isis ha
began in 2008 has led o high le els o go e nmen bank deb becoming a majo
h ea o he inancial sus ainabili y o he public sec o and o he iabili y o
public se ices. In many coun ies p oblems o go e nmen insol ency ha e led o
sha p inc eases in hei isk p emiums educed sco es assigned by c edi a ing
agencies and di icul ies in accessing he c edi ma ke hus jeopa dising
go e nmen se ices and bene i s a si ua ion ha is o g ea conce n o o e s
inancial manage s policymake s use s o public se ices axpaye s go e nmen s
public employees and o he s akeholde s.
This c i ical inancial si ua ion which has pa icula ly a ec ed local go e nmen s
in coun ies such as Spain has led esea che s o ocus on analysing he ac o s ha
in luence le els o deb go e nmen spending de ici inancial heal h and iscal
s ess and o disco e de e minan ac o s o a demog aphic socioeconomic and
inancial na u e. Howe e , un il now insu icien esea ch a en ion has been paid
o iden i ying poli ical ac o s ha may p o oke go e nmen insol ency al hough
some s udies ha e commen ed on he in e es and imeliness o examining he
p o ile o he mayo ha o he go e ning pa y and he na u e o he poli ical
en i onmen as ac o s ele an o he inancial posi ion o local go e nmen s.
Based on a sample o 148 la ge Spanish local go e nmen s and analysing da a o
he pe iod 2006-2011 his pape ad ances ou unde s anding o he in luence o
poli ical ac o s on he isk o local go e nmen de aul h ough a s a is ical
analysis o he associa ion be ween he de aul p obabili y based on Basel II ules
and en poli ical a iables.
The esul s ob ained enable us o iden i y ou poli ical ac o s ha may inc ease
he de aul isk o local go e nmen s as ollows: he mayo ha ing s udied an
economics- ela ed uni e si y deg ee he p esence o a low p opo ion o women
councillo s in he municipal co po a ion he le -wing ideology o he go e ning
pa y and i s ideological alignmen wi h he pa y in powe in he egional
go e nmen . These empi ical esul s imply ha he ac o s associa ed wi h he
p o ile o he local go e nmen ha e a g ea e impac on i s de aul isk han hose
o he mayo ’s p o ile o hose conce ning he poli ical con ex . Howe e , we ha e
no been able o s udy he in luence o o he a iables used in p e ious li e a u e
such as he age and expe ience o mayo s and councillo s.
These indings a e e y use ul o decision-making o di e se s akeholde s. Fi s
he iden i ica ion o hese poli ical ac o s p o ides o e s wi h ele an
in o ma ion wi h which o choose leade s and poli ical pa ies whose beha iou
will be less likely o isk si ua ions o local go e nmen de aul and he e o e
62
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om Spain
a oid jeopa dising he inancial sus ainabili y o public se ices he imposi ion o
spending cu s educed go e nmen bene i s o inc eased axes as has happened in
ecen yea s in eu ozone coun ies such as Spain, Po ugal, G eece, I aly and
I eland. Howe e , he p ope in e p e a ion o hese indings equi es o know ha
he inancial decisions o local go e nmen s gene ally ha e long- e m e ec s, and
no only sho - e m. The e o e, hese isk ac o s a e also caused, a leas pa ially,
by inancial decisions om p e ious yea s.
Second knowledge o hese ou signi ican ac o s is e y impo an o inancial
planning manage s – who mus ensu e he municipali y is able o epay i s loans –
and o inancial ins i u ions and o he c edi o s in hei decisions ega ding loans
and paymen de e als. Thi d hese indings may help na ional go e nmen s local
poli icians and iscal au ho i ies apply inancial discipline and hus educe isk
p emiums imp o e c edi a ing agency sco es and acili a e access o he bank
c edi ma ke hus ensu ing he iabili y o public se ices.
The esul s p esen ed in his pape ep esen an ad ance on he indings o
p e ious esea ch. S udies ha e sugges ed ha i he mayo has an economics-
ela ed uni e si y deg ee his migh a ou mo e p uden municipal beha iou and
hus a educed isk o local go e nmen de aul as he knowledge and expe ise
acqui ed could acili a e he adop ion o con ol measu es o a oid insol ency.
Howe e , ou esul s con adic his iew showing ha he mayo ’s economics-
ela ed p o iciency may in ac heigh en he isk o local go e nmen de aul .
Fu he mo e, ou indings ex end hose o p e ious s udies which ha e epo ed
he a ou able e ec on ax e enues o he p esence o a highe p opo ion o
women councillo s in he municipal co po a ion bu did no s udy he ela ion
be ween his a iable and he de aul isk. Ou esul s show speci ically ha
inc easing he pe cen age o women councillo s can help educe de aul isk
al hough p e ious s udies ha e concluded ha his a iable does no a ec he
olume o bank deb .
Ano he no el con ibu ion o ou empi ical esul s conce ns he ela ion be ween
he le -wing ideology o a go e ning pa y and inc eased le els o deb spending
and budge de ici . We show ha a local go e nmen wi h his ideology may
agg a a e he isk o de aul . Mo eo e , al hough p e ious s udies a e no
unanimous ega ding he impac o ideological alignmen be ween he go e ning
pa y in he local and egional go e nmen s ou indings show ha such an
alignmen may con ibu e o inc easing he de aul isk o he local go e nmen .
Following p onouncemen s by IFAC, FASAB, NAO and LGC acco ding o which
deb spending and income a e h ee in e ela ed dimensions o go e nmen
inancial sus ainabili y ou indings show ha he in luence o some poli ical
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E idence om Spain
63
ac o s on bank deb go e nmen spending and e enues om axes and ans e s
does no always impac on he isk o local go e nmen de aul . In ac al hough
p e ious esea ch sugges s a possible e ec o some poli ical a iables on his
de aul isk we ound no e idence o any such in luence o he ollowing ac o s:
he mayo ’s gende poli ical agmen a ion in he municipal co po a ion he
poli ical s eng h o he go e ning pa y ideological alignmen be ween he
go e ning pa y in local go e nmen and ha in he cen al go e nmen and he
numbe o yea s he go e ning pa y has been in powe .
Finally ou indings led us o iden i y he ollowing a eas o in e es o u u e
esea ch in o de o ex end his s udy o he e ec o poli ical ac o s on he isk o
local go e nmen de aul : a) a compa a i e analysis o he in luence o poli ical
a iables in di e en local go e nmen s in coun ies belonging o he Anglo-
Saxon con inen al Eu opean and No dic cul u es o go e nmen ; b) a s udy o he
impac o poli ical a iables aking in o accoun he size o each municipali y
ob aining da a om la ge small and medium-sized municipali ies; c) a s a is ical
analysis o he join in luence o poli ical socio-economic demog aphic and
inancial ac o s; d) deepen he causes by which mayo s wi h g ea e economic
aining ha e beha iou iskie abou de aul ; e) iden i ica ion o he causes o he
e ec o ideological alignmen be ween he go e ning pa y in local go e nmen
and ha in he egional go e nmen on inc eased isk o local go e nmen de aul .
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