The requirement of a balanced budget and borrowing limits in local public finance: setting out the problems

Abstract

This paper investigates local government budgeting and local debt with three preoccupations (i) the existence of any legal requirement for a local balanced budget, (ii) a possible control from higher government levels on local budgeting and borrowing and (iii) the implementation of the Maastricht convergence criteria for local public finance. The framework of discussion is given in six sections. The introductory section recalls two issues, Maastricht and recurring public deficits, which give the general background to the paper. Ten key issues are formulated in section 2. Owing to the heterogeneity of the accounting systems of local finance in Europe, some common definitions are necessary and are given in section 3. Section 4 presents a sequence of six questions with the intent of assessing the degree of budget discipline in the particular country. Questions about how the budgetary rules influence the budgetary position and the fiscal outcome of the communes in one country are presented in section 5. Tentative results are discussed in section 6.