Financial Resilience in the Face of Turbulent Times: Evidence from Poland and Croatian Cities

Abstract

The financial crisis and COVID-19 pandemic have affected the financial systems at various levels of government. The cities in Poland and Croatia have been no exemption. In turbulent times, they have been faced with the need to reorient their budgets to remain resilient and solvent. Therefore, the purpose of this article is to investigate the financial resilience profiles of large cities in Poland and Croatia from 2010 to 2020 and to identify the factors differentiating the identified resilience patterns. To obtain empirical results, a two-stage research procedure was employed. In the first stage, group-based trajectory modeling (GBTM) was applied, while a panel data regression was employed in the second. Our research has revealed different patterns of financial resilience among the cities in Poland and Croatia; moreover, the scope of fiscal resilience of local government units (LGUs) differed over time, which made it possible to distinguish four groups of cities in every country characterized by similar resilience trajectories over time. The common predictors of fiscal resilience in both countries are the percentage of the operating surplus in total income, total income per capita and capital expenditure per capita, although the strength of its impact varies from group to group identified by GBTM. Our research has shown that the source of differences in LGUs’ financial resilience is not as much the nature and intensity of the disturbances experienced as the internal financial capacity.