Analysis of the Association Between Political Change in Local Government and Municipal Financial Condition in Spain During the Great Recession

2. Theoretical Framework: Financial Condition And Political Characteristics

The concept of financial condition is not a directly observable quantity, and there is no unambiguous way to measure it. Hence, various alternatives have been proposed. According to Groves, Godsey and Shulman (1981), financial condition has four distinct meanings, related to cash solvency, budget solvency, long-run solvency and service-level solvency. Other authors, such as Copeland and Ingram (1983), Berne (1992) and Clark (1990, 1994) have associated the term with the analysis of flows of revenues and expenses and with the determinants that characterise the entities in the acquisition of financial liabilities, within a given time horizon and within a specific economic space or dimension. On the other hand, Berne and Schramm (1986) held that the correct evaluation of financial condition requires us to consider a series of magnitudes concerning the environment, related to the needs and preferences of society, local conditions that affect the provision of public services, the costs of productive factors, activities, the resources available to society and the public policies that affect the local corporation.