Fiscal Distress of Hungarian Local Governments in the Light of the Debt Consolidation and the Reorganisation of the Municipal System

Abstract

The consolidation of the debt of the municipalities and the reorganisation of their tasks and funding were significant reforms of the Hungarian public sector. In this study, we examined the differences in the financial parameters of the period of 2005-2008 among the local governments which took part in the debt consolidation and which are remained out. We applied logistic regression on a sample of 230 local governments. The study also aims to examine how the reorganisation of the tasks and funding affects the differences between the two groups. Our results confirm that there were significant differences in their own revenues and operating balance. In the post-consolidation period, we found that the two groups are converged to each other, so the changes in the operation of the local governments reduced the previously existing differences. Besides that, our results show that the local governments of the sample improved their financial conditions, generally.