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

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

José L. Zafra-Gómez (University of Granada, Spain), Antonio M. López-Hernández (University of Granada, Spain), Juan Montabes (University of Granada, Spain) and Ángel Cazorla (University of Granada, Spain)
DOI: 10.4018/978-1-5225-7820-8.ch005

Abstract

The political influence on the financial condition of local government has been examined in various studies in the academic literature. However, no clear relationship has yet been established between such political factors and the constituent elements of financial condition sustainability in the context of the recent Great Recession. The aim of this study is to evaluate the dimensions of electoral size, defined for the chapter's purposes as the effective number of parties, and of transfer (i.e., how electoral gains and losses are related to the configuration of the party system) using a series of aggregate indices. Once these indicators are obtained, they are related to various indicators of financial condition for five Spanish cities. The results obtained show that financial condition either worsened or presented little change in the different cases considered and that various scenarios of aggregate volatility during the study period were detected.
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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.

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