Debt Dynamics Among European Municipalities and Their Organizations: Comparative Analysis with Focus on Hungary

Abstract

Purpose: This paper analyzed the debt of municipal subsystems of public finances and the organizations they own compared to EU member countries' GDP during the 2013-2018 period. Our study's essence is to characterize the EU member states based upon the two areas of investigation. We also analyzed the relationships between the liabilities of the entities, and, through the use of statistical methods, we compared the respective values and examined the effect on debt from both local government system models and geopolitical location. Design/Methodology/Approach: Three hypotheses were formulated, and we conducted our research with statistical methods (regression, cluster and variance analyses, LGCEshare variables). We utilized a case study on Hungary to explore the development of the two areas over time and examined how debt value was affected by the regulatory environment. Findings: Between the two areas of the local system's economic management, a statistical connection can be identified. The liabilities as a percentage of the GDP of local government-owned businesses are considering it has been established. This is especially true in Germany and Scandinavian countries. However, it must be noted that the results of the statistical analyses and the theoretical division are different from each other. Another unique element of this study is considering the debt dynamics of municipalities and their corporations following the comprehensive fiscal reforms post-2010. Practical Implications: The research results can be used to assess the related financial positions of local governments and their economic organizations, to which the European Union is also paying increasing attention. Originality/Value: We examined the relationship between the liabilities of local governments and their economic organizations, and we showed a relationship between the two areas by using statistical methods. We found that the effect of the local government system model and geopolitical location on the debt stock is fundamentally determinant, but not in every case.