H74 - State and Local BorrowingReturn

Municipalities in the Slovakia as part of public sector have to finance their needs in accord of legally set municipal budgeting principles. The general basic rule mentions that current needs have to be financed from current budget. Capital or investment expenditure can be financed by returnable resources. Using returnable finance resources induces the indebtedness. Although the state level of government is not responsible for the indebtedness incurred on municipal level, usually limits the municipal indebtedness by law and monitors the total municipal debt and debt service. The paper deals with municipal indebtedness in the SR, where total municipal debt is involved to econometric investigation in aim to identify its determinants. Estimated GMM dynamic panel model includes time effects and reveals significant positive influence of capital revenues, debt service and lagged debt. Significant is negative impact of unemployment rate and financial autonomy. Time effects are significant in period of 2003-2004 (extensive indebtedness of certain cities), 2008-2010 (effects of public sector reform and previous economic expansion) 2011(delayed impact of financial crisis) and 2012-2014 (economic recovery).