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Causes of financial distress of Portuguese municipalities: empirical evidence


  • Flora Cunha Lobo
  • Pedro Ramos
  • Oscar Lourenco


This paper analyses the factors behind the financial distress of local government in Portugal. A Probit model is used to estimate the probability of a municipality entering into a financial recovery contract, regulated by the Portuguese Local Finance Law. Empirical results indicate that both structural and non-structural factors influence local financial distress. In addition to financial management practices, financial distress is also conditioned by political variables and socio-economic factors. Municipalities ruled by mayors that belong to a right-wing party are more prone to financial distress, and some municipalities are more financially vulnerable than others because of structural circumstances.

Suggested Citation

  • Flora Cunha Lobo & Pedro Ramos & Oscar Lourenco, 2011. "Causes of financial distress of Portuguese municipalities: empirical evidence," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 4(4), pages 390-409.
  • Handle: RePEc:ids:ijmefi:v:4:y:2011:i:4:p:390-409

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    Cited by:

    1. W. D. Gregori & L. Marattin, 2015. "Determinants of Fiscal Distress in Italian Municipalities," Working Papers wp1024, Dipartimento Scienze Economiche, Universita' di Bologna.


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