scholarly journals Hardening the budget constraint: Institutional reform in the financial management of Hungarian local governments

2020 ◽  
Vol 70 (4) ◽  
pp. 571-592
Author(s):  
Tamás Vasvári
Keyword(s):  
Financial Management ◽  
Local Governments ◽  
Central Government ◽  
Budget Constraint ◽  
Soft Budget Constraint ◽  
Fiscal Discipline ◽  
Financial Independence ◽  
Political Interests ◽  
The One ◽  
Negative Messages

AbstractKornai (2014) described the problems of municipal indebtedness in Hungary and analysed the process of bailout carried out between 2011 and 2014. In the same period, the central government also reformed the local government system, which included serious limitations of their financial independence. This study re-examines the state of the soft budget constraint (SBC) of Hungarian local governments. To start, the general theoretical framework of SBC is introduced. Then, the budget constraint on the Hungarian local governments before the bailout is described briefly, followed by an assessment of the corresponding measures which were expected to offset the negative messages of the completed bailout and to harden the budget constraint. The study concludes that the central government decided to harden the budget constraint through the introduction of new hierarchical mechanisms, while the development of fiscal discipline stopped. On the one hand, this resulted in the consolidation of municipal budgets, but on the other, it was accompanied by a serious limitation of local autonomy, projects and borrowing in general, while the central government employs specific administrative tools to show favour to some settlements according to its (political) interests.

The issue of sustainability in a highly centrally regulated fiscal model of local governments: an empirical study

2020 ◽  
Vol 33 (6) ◽  
pp. 669-689 ◽  
Author(s):  
András Bethlendi ◽  
Csaba Lentner ◽  
László Nagy
Keyword(s):  
Financial Management ◽  
Local Governments ◽  
Central Government ◽  
Annual Reports ◽  
Social Characteristics ◽  
Financial Sustainability ◽  
Soft Budget Constraint ◽  
Data Set ◽  
Content Type

Purpose This study aims to assess the sustainability of local governments in a highly centrally regulated fiscal model. Design/methodology/approach This paper uses a novel approach, a broad data set of almost 3,200 local governments and network methods. This paper analyses financial data from annual reports and other socio-economic sources using cluster analysis. Findings Even in this model, local governments show significant differences in terms of long-term sustainability. Investments do not compensate for the depreciation of tangible assets at a significant part of local governments. A specific type of soft budget constraint can be noticed. Heads of local governments do not “play” for subsequent ad hoc bailouts by the central government, but rather engage themselves in political competition for development subsidies. A further finding of this study is that shrinking populations itself does not explain the differences in local governments’ financial management. Research limitations/implications Further directions of research include the application of an extended approach to sustainability that gives an account of the availability and quality of local services, as well as aims to identify the qualitative social characteristics (success criteria) of the local government financial management. Practical implications The findings can be useful for policymakers, state audit offices, auditors, voters, users of public services and other stakeholders. Social implications The paper argues in favour of moving away from the financial balance in its narrow sense to a long-term and broader term of financial sustainability. Originality/value The findings provide new empirical evidence about the accounting-based measurement of financial sustainability in local governments.

Dynamic Commitment and the Soft Budget Constraint: An Empirical Test

2010 ◽  
Vol 2 (3) ◽  
pp. 154-179 ◽  
Author(s):  
Per Pettersson-Lidbom
Keyword(s):  
Local Governments ◽  
Central Government ◽  
Empirical Test ◽  
Budget Constraint ◽  
Soft Budget Constraint ◽  
Fiscal Transfers ◽  
Ex Post ◽  
Ex Ante ◽  
Commitment Problem ◽  
Empirical Framework

This paper develops an empirical framework for the problem of soft budgets which is explicitly based on a dynamic commitment problem, i.e., the inability of a supporting organization to commit itself not to extend more resources ex post to a budget-constrained organization than it was prepared to provide ex ante. Swedish local governments are used as a testing ground since the central government distributed a large number of fiscal transfers. The estimated soft-budget effect is economically significant: on average, a local government increases its debt by more than 20 percent by going from a hard to a soft budget constraint. (JEL D82, G32, L32)

scholarly journals Local Financial Performance and Its Impact on Border Community Welfare

2019 ◽  
Vol 35 (2) ◽  
pp. 402-410
Author(s):  
Sri Suartini
Keyword(s):  
Financial Performance ◽  
Financial Management ◽  
Local Governments ◽  
Central Government ◽  
Fiscal Decentralization ◽  
Government Expenditure ◽  
Financial Independence ◽  
Regional Autonomy ◽  
Border Community ◽  
Border Areas

The capability and creativity of financial management conducted by the foremost and outermost local governments should support the orientation of the central government in developing the nation border areas. It needs to be carried out to able to accelerate the development of the areas and to implement regional autonomy policy and fiscal decentralization nowadays. Accordingly, this research aims to discover the local financial performance in Indonesian outermost and foremost areas based on the various calculating indicators. This research also intends to reveal the local financial independence impacts of outermost and foremost areas on their people’s welfare. The analysis results indicate that most of the outermost and foremost local governments in Indonesia possess a very low financial independent ratio. Those areas still prioritize their government expenditure to fulfill the indirect purchase which is not paying attention to develop their areas. Overall, the financial performance of those areas until now does not contribute a real impact on improving the border people’s welfare.

scholarly journals THE ROLE OF LOCAL GOVERNMENTS IN REGIONAL FINANCIAL MANAGEMENT FOR THE HANDLING OF THE COVID-19 PANDEMIC

Yurispruden ◽  
2021 ◽  
Vol 4 (2) ◽  
pp. 208
Author(s):  
Fahrul Abrori
Keyword(s):  
Local Government ◽  
Research Methods ◽  
Financial Management ◽  
Local Governments ◽  
Central Government ◽  
Fiscal Decentralization ◽  
The Government ◽  
The Stability ◽  
The Relationship

 ABSTRAKPandemi Covid-19 yang terjadi di Indonesia membuat pemerintah membuat kebijakan-kebijakan sebagai stimulus untuk menjaga kestabilan masyarakat dan perekonomian. Pemerintah pusat memberikan kewenangan kepada pemerintah daerah untuk mengelola keuangan daerah untuk menangani covid-19 di daerah masing-masing. Hal ini disebabkan karena pemerintah daerah lebih memahami kebutuhan daerahnya. Permasalahan yang diangkat Pertama, bagaimana hubungan Pemerintah Pusat dan Pemerintah Daerah dalam pengelolaan keuangan untuk penanganan pandemi Covid-19? Kedua, Apa peran Pemerintah Daerah dalam pengelolaan keuangan daerah untuk penanganan pandemi Covid-19? Menggunakan metode penelitian yuridis normatif dengan pendekatan perundang-undangan dan pendekatan konsep. Hubungan Pemerintah Pusat dan Pemerintah Daerah dalam Pengelolaan Keuangan untuk Penanganan Pandemi Covid-19 yaitu desentralisasi fiskal yang mana. Peran Pemerintah Daerah dalam Pengelolaan Keuangan Daerah untuk Penanganan Pandemi Covid-19 yaitu dengan melakukan refocusing kegiatan, realokasi anggaran, dan Penggunaan Anggaran Pendapatan dan Belanja Daerah.Kata kunci: Pemerintah Daerah, Pengelolaan Keuangan Daerah, Pandemi Covid-19 ABSTRACTThe Covid-19 pandemic in Indonesia led the government to make policies as a stimulus to maintain the stability of society and the economy. The central government authorizes local governments to manage local finances to deal with covid-19 in their respective regions. This is because the local government better understands the needs of the region. The issue raised first, how is the relationship between the Central Government and Local Government in financial management for the handling of the Covid-19 pandemic? Second, What is the role of local governments in regional financial management for the handling of the Covid-19 pandemic? Using normative juridical research methods with statutory approaches and concept approaches. The relationship between the Central Government and Local Government in Financial Management for the Handling of the Covid-19 Pandemic is fiscal decentralization. The role of local governments in regional financial management for the handling of the Covid-19 pandemic is by refocusing activities, reallocating budgets, and using regional budgets.Keywords: Local Government, Regional Financial Management, Covid-19 Pandemic

scholarly journals Empirical Analysis of the Driving Factors of China’s ‘Land Finance’ Mechanism Using Soft Budget Constraint Theory and the PLS-SEM Model

2019 ◽  
Vol 11 (3) ◽  
pp. 742 ◽  
Author(s):  
Xinhua Zhu ◽  
Yigang Wei ◽  
Yani Lai ◽  
Yan Li ◽  
Sujuan Zhong ◽  
...  
Keyword(s):  
Economic Development ◽  
Local Governments ◽  
Driving Forces ◽  
Fiscal Decentralization ◽  
Budget Constraint ◽  
Driving Factors ◽  
Equation Modeling ◽  
Soft Budget Constraint ◽  
Land Transfer ◽  
Constraint Theory

“Land finance” refers to the key fiscal strategy in which local governments in China generate revenue through land grant premiums and land tax revenues. A burgeoning body of literature has focused on the driving factors of China’s land finance from different aspects including fiscal decentralization, revenue decentralization, competition among local governments, land marketization, infrastructure development, and economic development. However, little research has provided a comprehensive perspective integrating social, economic and institutional aspects to investigate the driving forces of these unique and profound issues in China. This study aims to investigate the driving factors and working mechanism of land finance. A theoretical and empirical model was proposed using soft budget constraint theory and least squares structural equation modeling (PLS-SEM). The panel data of 35 Chinese major cities were assessed between 2006 and 2015. The empirical results contend the following: (1) the land transfer and fiscal systems provide the key impetus for land financing because the land transfer system forms a stable modality, and the fiscal system is an important incentive for land financing; (2) the effects of the economic development and political system are insignificant; and (3) the political and land systems significantly influence economic development. Our contributions focus on two aspects. Firstly, a comprehensive framework of factors germane to land finance is constructed. Secondly, a new research methodology for land use study is proposed. To the best of our knowledge, the current study is the first to employ the PLS-SEM method to delineate and verify the influence paths between multiple driving factors and land finance in different cities. Hence, research reliability can be improved.

Public Finance and Soft Budgets

2018 ◽  
Author(s):  
Rosella Levaggi
Keyword(s):  
Local Governments ◽  
Fiscal Federalism ◽  
Strategic Behavior ◽  
The United States ◽  
Policy Instrument ◽  
Budget Constraint ◽  
Public Hospitals ◽  
Public Healthcare ◽  
Fiscal Competition ◽  
Soft Budget Constraint

The concept of soft budget constraint, describes a situation where a decision-maker finds it impossible to keep an agent to a fixed budget. In healthcare it may refer to a (nonprofit) hospital that overspends, or to a lower government level that does not balance its accounts. The existence of a soft budget constraint may represent an optimal policy from the regulator point of view only in specific settings. In general, its presence may allow for strategic behavior that changes considerably its nature and its desirability. In this article, soft budget constraint will be analyzed along two lines: from a market perspective and from a fiscal federalism perspective. The creation of an internal market for healthcare has made hospitals with different objectives and constraints compete together. The literature does not agree on the effects of competition on healthcare or on which type of organizations should compete. Public hospitals are often seen as less efficient providers, but they are also intrinsically motivated and/or altruistic. Competition for quality in a market where costs are sunk and competitors have asymmetric objectives may produce regulatory failures; for this reason, it might be optimal to implement soft budget constraint rules to public hospitals even at the risk of perverse effects. Several authors have attempted to estimate the presence of soft budget constraint, showing that they derive from different strategic behaviors and lead to quite different outcomes. The reforms that have reshaped public healthcare systems across Europe have often been accompanied by a process of devolution; in some countries it has often been accompanied by widespread soft budget constraint policies. Medicaid expenditure in the United States is becoming a serious concern for the Federal Government and the evidence from other states is not reassuring. Several explanations have been proposed: (a) local governments may use spillovers to induce neighbors to pay for their local public goods; (b) size matters: if the local authority is sufficiently big, the center will bail it out; equalization grants and fiscal competition may be responsible for the rise of soft budget constraint policies. Soft budget policies may also derive from strategic agreements among lower tiers, or as a consequence of fiscal imbalances. In this context the optimal use of soft budget constraint as a policy instrument may not be desirable.

Financial Sustainability of Municipalities and Local Governments in Small-Sized Cities; a Case of Shabestar Municipality

2018 ◽  
Vol 16 (1) ◽  
pp. 77-106
Author(s):  
Mehran Hajilou ◽  
Mohammad Mirehei ◽  
Sohrab Amirian ◽  
Mehdi Pilehvar
Keyword(s):  
Local Governments ◽  
Field Survey ◽  
Central Government ◽  
Active Role ◽  
Financial Sustainability ◽  
Policy Enforcement ◽  
Financial Independence ◽  
Revenue Sources ◽  
Self Sufficiency ◽  
Exploratory Data

Lack of a comprehensive approach to municipalities’ revenue sources in the form of macro-economic system, changes and interventions, self-reliance and self-sufficiency policy enforcement have put financial sector of municipalities in unsustainable situation. Continuing of this situation will have undesirable consequences on cities and urban management. Access to favorable and sustainable revenue sources leads municipalities to play a more active role in urban environment and properly meet the needs of citizens. In this regard, this research intends to analyze Shabestar Municipality’s revenue sources in terms of sustainability measures during 2004-2014. Type of the research is applicable and the method is descriptive-analytic and exploratory. Data collection has been carried out either documentary or field survey by using scoring forms and interviews with Municipality officials. Data analysis has been conducted by using Excel, Shannon Entropy and TOPSIS techniques. The results obtained showed that the trend toward financial independence of municipalities and decentralization of sub-national authorities has had some trouble and now municipalities need financial support from central government to fulfill their obligations. Shabestar Municipality like many other municipalities in Iran depends strongly on low favorable and unsustainable revenue sources such as sale of municipal immovable properties, charges on surplus density, charges on removing parking etc.

scholarly journals Analyzing Relationship Between Internal Auditor Capability and Financial Management Quality: A Study at Indonesia Local Governments

2020 ◽  
Vol 10 (2) ◽  
pp. 302
Author(s):  
Nur Fajri ◽  
Irwan Taufiq Ritonga
Keyword(s):  
Local Government ◽  
Financial Management ◽  
Local Governments ◽  
Central Government ◽  
Dominant Role ◽  
Group Discussion ◽  
Assessment Process ◽  
Internal Auditor ◽  
Factors Affecting ◽  
The Relationship

The purpose of this study is to analyze whether there is relationship between level of local government internal auditor (LGIA) capability and local government financial management (LGFM) quality. Furthermore, this study also identifies factors affecting the presence or the absence of a significant relationship between LGIA capability and LGFM quality. This research uses in-depth interviews and focus group discussion to identify factors affecting the presence or the absence of relationship between LGIA capability and LGFM quality. The results show that there is no relationship between LGIA capability and LGFM quality. The absence of the relationship is caused by dominant role of Local Government Working Units (LGWU) in the process of financial management; improvement of LGIA capability is not followed by improvement on the roles and services provided by LGIA; and potential weakness in assessment process of LGIA capability by The Finance and Development Supervisory Agency. Findings of this study will assist both central and local governments to evaluate “what went wrong” with their Improvement of LGIA Capability Programs and assist central government to formulate a better policy on relationship and coordination among head of local government, LGWU, and LGIA.This research develops a new method to measure LGFM quality comprehensively. This study also fills gap in the literature exploring the relationship between LGIA capability and LGFM quality, which is still rare at present.

scholarly journals Motivasi, Kepuasan Kerja, Komitmen Pegawai Akuntansi dan Kualitas Laporan Keuangan Pemerintah Daerah pada Pemerintah Kota Depok

2014 ◽  
Vol 1 (02) ◽  
pp. 187-199
Author(s):  
Baja Lodhrakentjana ◽  
Elvira Luthan
Keyword(s):  
Job Satisfaction ◽  
Financial Management ◽  
Local Governments ◽  
Structural Equation ◽  
Central Government ◽  
Good Governance ◽  
Financial Statements ◽  
City Government ◽  
Equation Modeling

ABSTRACT Public demand for good governance is increasing. This encouraged the central government and local governments to implement the public accountability. One indicator of the performance of local governments in the field of financial management indicated on the output of the quality of the financial statements are realized by the opinion of local government financial statements based on the audit by the Supreme Audit Agency (BPK). This study aimed to examine the effect of motivation, job satisfaction and commitment to quality financial statements regional governments made by employees who handle accounting on regional work units and the Regional Finance Management Unit (SKPD and SKPKD) Depok city government. Data analysis was performed using Structural Equation Modeling (SEM) with aid Linear Structural Relations (Lisrel). The results show that the motivation, job satisfaction and commitment is positively related and significant effect on the quality of financial reporting. ABSTRAK Tuntutan masyarakat terhadap pengelolaan pemerintahan yang baik semakin meningkat. Hal ini mendorong pemerintah pusat dan pemerintah daerah untuk menerapkan akuntabilitas publik. Salah satu indikator kinerja pemerintah daerah di bidang pengelolaan keuangan ditunjukkan dari keluaran berupa kualitas laporan keuangan yang diwujudkan oleh opini laporan keuangan pemerintah daerah berdasarkan audit oleh Badan Pemeriksa Keuangan (BPK). Penelitian ini bertujuan untuk menguji pengaruh motivasi, kepuasan kerja dan komitmen terhadap kualitas laporan keuangan pemerintah derah yang dibuat oleh pegawai yang menangani akuntansi pada Satuan Kerja Perangkat Daerah dan Satuan Kerja Pengelola Keuangan Daerah (SKPD dan SKPKD) pemerintah kota Depok. Analisis data dilakukan dengan menggunakan Structural Equation Modelling (SEM) dengan bantuan Linear Structural Relation (Lisrel). Hasil pengujian menunjukkan bahwa motivasi, kepuasan kerja dan komitmen berhubungan positif dan berpengaruh signifikan terhadap kualitas laporan keuangan. JEL Classification: H53

scholarly journals Analysis of Regional Financial Management of North Bengkulu District Towards Regional Independence in The Autonomy Era

2021 ◽  
Vol 2 (1) ◽  
pp. 1-7
Author(s):  
Yohanes Susanto ◽  
Shinta Wiji Rahayu
Keyword(s):  
Financial Management ◽  
Central Government ◽  
Secondary Data ◽  
Financial Independence ◽  
Regional Autonomy ◽  
Low Level ◽  
The North

The purpose of this study was to determine the extent to which the financial management of the North Bengkulu district affected regional independence. In this study researchers used secondary data with techniques of collecting data from relevant agencies and using the method of analysis of regional financial independence. The results showed that North Bengkulu Regency was still not at the level of being able to finance its own household, the level of  independence of North Bengkulu district during 2012-2019 was at a low level of independence and was still very dependent on the central government.   Keywords: Regional Autonomy, Financial Management, Financial Independence

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