Is Portugal Gaming with the Performance Feedback of the Late Payments Directive? Evidence from the Portuguese Municipalities

This paper aims to assess the possible use of gaming by the Portuguese government by allowing Portuguese municipalities not to consider all the short-term liabilities on the European Late Payments Directive (LPD) performance measurement. The analysis is based on data from 308 Portuguese municipalities from 2014 to 2019, using panel data regression. A breakdown by those local governments that comply, or do not, with the LPD threshold, as well as by size classes is also performed to provide a more in-depth analysis of findings. The findings indicate that the total debt of Portuguese municipalities is significantly explained by commercial liabilities that are not considered in the LPD performance measurement. They also show that the payment period has reduced on average, but is still not aligned with the LPD 30-day objective. Moreover, the larger local governments are the ones with the lower payment period on average, mostly complying with the LPD threshold. Despite being limited to municipalities and a single country, its findings may highlight the need for defining common performance measures for the European Union (EU), since Portugal is a member state. This can be relevant for policy-makers but also for a broader audience that includes local citizens and regulatory bodies within the EU.