Identifying risk determinants of the financial sustainability of regional governments

IMPACT This paper will help policy-makers and managers in regional and local governments to improve the management of risk and opportunities, as well as to prevent or resolve sustainability problems. The paper provides lessons, based on the Spanish experience, for politicians and practitioners to improve the management of regional governments' financial sustainability. The authors stress the need to estimate the longer term financial effects of a migrant population and the unemployed; to analyse the long-term financial impact of subsidies from other levels of government; to monitor proportionality between awarding grants and making capital investments; and to look at ways of increasing a regional government's contribution to its own revenue (for example through fees, taxes and rates). This paper identifies some of the important factors that influence the financial sustainability of regional governments. Data from all of Spain's regional governments show that unemployment, immigrant population, dependent population, structure of revenues and expenditures, and the source of debt had impacts on financial sustainability.