Debt limits in local government : theoretical analysis and empirical evidence in Portuguese municipalities

Ribeiro, Nuno A.; Jorge, Susana M.

http://hdl.handle.net/10198/9008

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Authors

Ribeiro, Nuno A.

Jorge, Susana M.

Abstract(s)

In order to keep local public finances balanced, in many countries, measures restraining and controlling debt have been implemented. In Portugal such concerns have been considered too. Accordingly, several legal diplomas have been passed, namely local finances laws, defining rules, mainly related to limits and restrictions to interest, repayments of borrowings, as well as net debt level. Therefore, it should be expected that these legal restrictions would contribute to reduce municipal debt. Within this context, taking into consideration the institutional theory, particularly the coercive isomorphism perspective, this paper analyses the evolution of Portuguese municipalities’ debt aiming at assessing whether institutional pressures consubstantiated in the legal framework meanwhile approved have led to a common behaviour for effectively reducing debt. A six-year period was considered (2004-2009) following a positive approach and quantitative methodology. Findings show that, during that period, contrary to what was expected, except for Açores region, municipalities in all other regions have increased their net debt levels. In summary, it may be observed that the introduction of restrictive measures to Portuguese municipalities’ debt, during the analysed period, ceteris paribus, does not seem to have had the intended effects, i.e., debt reduction, hence raising questions about the effectiveness of legal control mechanisms.

Keywords

Municipal debt Debt limits Institutional restrictions Local government

URI

http://hdl.handle.net/10198/9008

Citation

Ribeiro, Nuno A.; Jorge, Susana M. (2013). Debt limits in local government : theoretical analysis and empirical evidence in Portuguese municipalities. In 14th Biennial CIGAR Conference – In the Eye of the Storm : Public Sector Accounting, Financial Crisis and Austerity. Birmingham.