Identifying the Financial Risk Factors of Excessive Indebtedness of Rural Communes in Poland

Aldona Standar,Agnieszka Kozera

doi:10.3390/su12030794

Abstract

The purpose of this paper is to identify the financial risk factors of excessive indebtedness of Polish rural communes. The objective of this research task is to verify the following research hypothesis: the main determinant of the risk of excessive indebtedness is the rural communes’ own income potential. To meet the objective of this research, an empirical study was carried out in three steps. The first step of the research procedure was the analysis of the operation of Polish rural communes in the context of financial management. In the second step was the analysis of indebtedness of rural communes compared to other types of Polish administrative units in 2007–2017. The evolution of the level and share of total debt in total incomes of entities studied was analyzed, and the share of overindebted rural communes was identified. In the third step, a discriminatory analysis was performed to build a model able to forecast the financial risk factors of excessive indebtedness for Polish rural communes. The problem of increasing indebtedness can be observed in a growing number of communes and on an increasing scale in Poland. The discriminant analysis showed that the share of the operating surplus and own income in total income, as well as the amount of the EU funds per capita (in zlotys), are particularly significant. The study reveals that the smaller the share of the operating surplus in total income is as well as the greater the share of own income in total income and the amount of the EU funds in zlotys per capita are, the lower the value of the estimated discriminatory function is and the higher the risk of excessive indebtedness of a rural commune is.

Highlights

Along the lines of what is in place in other European countries, Polish government entities handle only a part of local and regional tasks
As basic local government units (LGUs), the communes carry out tasks of importance in the local context while the districts represent an intermediate level in charge of supra-communal tasks
Ever since Poland joined the European structures, much attention has been paid to rural development [49,50,51], in the context of assessing the financial condition of rural areas, including excessive indebtedness [52,53,54,55]

Summary

Introduction

Along the lines of what is in place in other European countries, Polish government entities handle only a part of local and regional tasks. Voivodeships, the largest entities in the country’s territorial division, carry out regional tasks To perform their tasks and functions, Polish local government entities access defined sources of incomes, i.e., own incomes (including fiscal and non-fiscal income and property income) and transferred incomes (targeted grants and state budget subsidies). A considerable share of transferred incomes (grants, subsidies), largely based on a discretionary allocation of funds by central authorities, restricts the LGUs’ financial autonomy. To perform their own tasks, and, in particular, to implement infrastructure investments, local government entities may access repayable sources of finance (including credit and loans)

Objectives

Methods

Results

Discussion

Conclusion