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Causes of financial distress of Portuguese municipalities: empirical evidence

Listed author(s):
  • 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.

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Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Monetary Economics and Finance.

Volume (Year): 4 (2011)
Issue (Month): 4 ()
Pages: 390-409

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Handle: RePEc:ids:ijmefi:v:4:y:2011:i:4:p:390-409
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