Analyzing local government financial performance: evidence from Brazilian municipalities 2005-2008

Abstract

Municipality size has become an issue since the New Public Management doctrine of disaggregating structures into manageable units. In some countries, this doctrine led to the creation of small-scale agencies relying heavily upon transfers from upper-level governments. This paper aims to contribute to performance management literature by providing empirical evidence about some determinant factors that are likely to endow local governments with superior financial performance. Data came from a sample of Brazilian municipalities and refers to the period 2005-2008. The main conclusion of this investigation is that larger cities are more likely to manage revenue and expenditure better than are smaller cities, which aligns with the discussion of amalgamation versus fragmentation. This conclusion stems from the findings that in small municipalities mayors have fewer conditions to improve financial performance due to the difficulty of raising and collecting taxes and of reducing expenditures, which makes their administrations far more dependent upon external sources of money. Therefore, this dependent relationship can be seen as the cause of poor financial performance to the extent that it lowers mayoral discretion when making decisions. Another contribution this paper proposes to theory and practice relates to the fact that in the strong-mayor form of local government, mayoral qualification is likely to have little effect upon performance.

Local government financial condition and sustainable development of communities in Nigeria

“…The financial performance management index (FPMI) showed the lack of self sufficiency of the 122 local governments as the ratio is far less than one. Reference [12] suggest that as the FPMI approaches zero, the more the reliance of the local government on transfers from higher government authorities. Thus, none of the local governments showed good financial performance.…”

“…For example, self income ratios, financial performance index, ratio of percentage change in net assets to total assets, and fiscal balance [8,12,17]. Similarly, this study utilized four ratios: fiscal balance ratio, financial performance index, self income ratio, and budget solvency ratio in examining the financial condition of local governments in Nigeria.…”

“…All these can only be made possible where managerial commitment and capabilities are effectively utilized. Reference [12] found significant relationship between quality of management and performance of local governments in Brazil.…”

Consequences of an Anti‐Corruption Experiment for Local Government Performance in Brazil

“…Our study examines performance in terms of the effectiveness of local government service provision. Unlike previous studies of municipal performance in Brazil that focus on the financial aspects of performance, such as property tax collection (Avellaneda & Gomes, 2015) or financial management and self-sufficiency (Gomes, Alfinito, & Albuquerque, 2013), our performance measure captures the effectiveness of local governance or "the actual achievement of formal service objectives" (Walker & Andrews, 2015, p. 103). These nine outcomes are useful for analyzing the effects of audits on municipal performance because they fall under the broader jurisdiction of municipal governments and may be subject to investigation during an audit.…”

The Effect of Head of Region Characteristics on Local Government Financial Performance: The Case of Indonesia

“…Results indicated that higher levels of education indicate an increase in government strategic performance, while age and tenure have no effect on improving strategic performance of local governments. Gomes et al (2013) conducted research on the quality of mayors proxied against educational background, age, previous administrative experience and city size on the financial performance of Brazilian local Advances in Economics, Business and Management Research,volume 36 governments. The results showed that the quality of the mayor does not affect the government's financial performance.…”