The electoral cycle and changes in the off-budget debt of municipalities

Abstract

There is a noticeable lack of broad coverage of the issue of local government off-budget debt in academic research. The area of local government budget debt and methods of limiting it in order to strengthen the financial stability of local governments are widely discussed and studied, while little is known about the issues of indebtedness of subordinate units of local governments, for which public authorities are responsible due to the nature and scope of the public tasks they perform. The results of the research indicate that the off-budget debt of local governments is growing and constitutes a significant item in the balance sheets of consolidated local governments in Poland, and that changes in its level are correlated with the electoral cycle, indicating the existence of a political business cycle in the local government and municipal enterprises sector. We also demonstrate that off-budget debt is a more important PBC instrument in large municipalities.