Key Debt Drivers of Local Governments: Empirical Evidence on Municipalities in Poland

Abstract

In the literature, the debt burden in local governments is considered as a main predictor of the fiscal distress. The growing indebtedness of the municipalities may also negatively affect the business sector. Therefore, this paper examines the significance of key financial and non-financial debt drivers of local governments based on the example of the municipalities functioning in Poland in 2010-2021. The article studies the whole population of the above public units and the influence of the financial, economic, demographic, institutional and spatial factors on their indebtedness. Due to the data, methodology and the robustness check, the fixed effects panel models, Arellano and Bond’s two-step generalized method of moments and the Moran I and LISA statistics were applied. Therefore, the final regressions include significant explanatory variables and might contribute to more efficient debt management and its control. The paper also reveals spatial associations in the field of the indebtedness of local governments.