Financial Condition of Local Government Units and Its Measures

Abstract

The study is part of considerations concerning the measurement of the financial condition of local government units (LGUs) and synchronization between the decentralization of public tasks and public finances. The authors assume that the stakeholders of information flowing from research on the financial condition of LGUs determine the use of appropriate indicators to assess it. The study: 1) identifies the approaches used in the literature in interpreting the concept of the financial condition of LGUs, 2) presents and systemizes indicators that are used for examining this condition, 3) proposes three new measures for the assessment of the financial condition of LGUs, the construction of which refers to the continuity of satisfying the social needs, taking into account the demand for securing independence and financial stability of LGUs, 4) verifies empirically the values of two selected assessment indicators of the financial condition of LGUs in a specific time period. The simulation of the financial condition of local government units using two selected indicators shows significant discrepancies in its assessment, and thus contradictory information reaching the stakeholders interested in them. According to the authors, there is a need to analyze the financial condition of LGUs using both standard and non‑standard measures, which will allow to assess the financial condition of a given local government unit from various points of view.