Financial Conditions, Financial Sustainability, and Intergenerational Equity in Local Governments

Abstract

The chapter offers a necessary summary of the key concepts of financial conditions, financial sustainability, and intergenerational equity in local governments through a close examination of different approaches. Focusing on a narrative literature review approach, the chapter has two main aims: first, to provide evidence on how to define the terms of theoretical and practical underpinnings to represent financial conditions in local governments in order to clarify the distinctive feature of financial conditions with a particular focus on the specific measures for budgetary solvency: sustainability, flexibility, and vulnerability; second, taking into account that the link between financial sustainability and intergenerational equity seems to be under-investigated, the authors discuss what the conditions for achieving financial health are while ensuring intergenerational equity with reference to the level of citizens' quality of life.

An appraisal of financial indicators for local government: a structured literature review

“…The lack of clear definitions regarding some basic financial concepts means that they are sometimes used interchangeably (Cabaleiro Casal et al , 2013). Even the concept of financial condition does not have a universal appreciation in the literature (Brusca et al , 2018), because it is difficult to represent it since it changes over time and it depends on the appreciation of the objectives of a public entity (Citro et al , 2018). Groves et al (1981) meant financial condition as solvency, differentiating between short, medium and long-term solvency, that is the ability of a LG to fulfil its various obligations (Ritonga et al , 2012).…”

“…What is more surprising is that most research on financial indicators for LGs does not draw comparisons across countries. Only five contributions (Citro et al , 2018; De Matteis and Preite, 2018; Hegedűs and Lentner, 2020; Hruza, 2015; Padovani et al , 2018) look at LGs in more than one country, while all other selected publications focus on analyses at national, provincial or solely local level (Table 3f). Hence, notwithstanding the adoption of accruals and IPSAS, common financial indicators for LGs are just beginning to emerge, meaning international comparative studies are still difficult to conduct (Carmeli, 2002).…”