The application of taxonomic methods and ordered logit model in the assessment of financial self-sufficiency of local administrative units

Abstract

The purpose of this paper was to identify the internal determinants of financial self-sufficiency of local government units, as illustrated by the example of Polish municipalities of the Wielkopolskie voivodeship, with the use of taxonomic methods and the ordered logit regression model. The first step of the proposed approach is to assess financial self-sufficiency of the municipalities using taxonomic methods, in order to subsequently model it with econometric techniques. In the first phase, the local government units' (LGU) financial self-sufficiency was assessed with positional TOPSIS (Technique for Order Preference by Similarity to an Ideal Solution). The results of this phase, that is, municipalities were grouped into classes by financial selfsufficiency level, were assumed to be the baseline. Afterwards, the ordered logit regression model was used. The estimated model allowed us to specify the significance (strength and direction) of selected socioeconomic development factors for the financial self-sufficency level of administrative units under consideration. The empirical basis for this study was statistical data for 2013 delivered by the Local Data Bank of the Central Statistical Office in Poland. The study confirmed that the size of local economic operators and the number of hotel beds stimulated the improvement of financial self-sufficiency levels of municipalities in the Wielkopolskie voivodeship, while the unemployment rate and the share of rural population in the total population were restraining factors.

Assessment of the Financial Autonomy of Rural Municipalities

“…Hence, along with FA, financial sustainability is The economic theories related to growth and development enable the researchers studying the FA phenomenon to identify the endogenous factors that are important for improvement of the FA of LGUs. The researchers (Satoła et al 2019;Standar and Kozera 2019;Głowicka-Wołoszyn and Satoła 2018;Łuczak et al 2018b;Rudytė et al 2018;Kozera et al 2017;Scutariu and Scutariu 2015;Jemna et al 2013) have not only listed a large number of the factors determining the FA of LGUs, but have also presented different classifications of these factors. Hence, an analysis of the FA factors with particular emphasis on the FA levels of the LGUs is also an important research topic from the economic and social perspective (Standar and Kozera 2019).…”

“…Financial autonomy is the prerequisite of existence of a local government and the key factor of stable local development. Sustainable financial resources are the foundation of social and economic development in rural areas in particular (Satoła et al 2019;Łuczak et al 2018b). Hence, assessment of the level of financial autonomy of rural municipalities has recently become an increasingly important research topic from the economic and socioeconomic perspective.…”

“…is the most widely and frequently (30%) applied for assessment of the majority of phenomena, activities, compared to other methods (AHP-20%; VIKOR-6.67%, ELECTRE-16.67%; other methods-10%) (Aruldoss et al 2013); • is applicable to dealing with economic, financial issues in international practice; • has been employed in the most recent empirical studies assessing FA of LGUs and, in particular, rural municipalities (Vavrek and Pukala 2019;Satoła et al 2019;Standar and Kozera 2019;Łuczak et al 2018a;Łuczak et al 2018b;Głowicka-Wołoszyn and Satoła 2018;Kozera et al 2017;Kozera and Głowicka-Wołoszyn 2016). Source: made by the authors according to (Slavinskaitė 2017;Aruldoss et al 2013;Ginevičius and Podvezko 2008;Hwang and Yoon 1981;Simanavičienė 2011;Zavadskas et al 2014).…”

“…The indicators had been used by more than one author in their studies (Vavrek and Pukala 2019;Satoła et al 2019;Standar and Kozera 2019;Łuczak et al 2018a;Łuczak et al 2018b;Głowicka-Wołoszyn and Satoła 2018;Kozera et al 2017;Kozera and Głowicka-Wołoszyn 2016).…”

“…Step 4. The determined synthetic indicator/index values were rearranged in a linear manner and became the basis for grouping of the municipalities into typological classes by the FA level (Satoła et al 2019;Łuczak et al 2018b). The typological classes/clusters of rural municipalities were determined in view of the mean indicator value (M) and standard deviation (S) (see Table 3).…”