The Analysis of the Financial Performance of Local Authorities in the Context of Budgetary Constraints

Abstract

Drawing on a set of financial and budget specific indicators, the paper examines the financial activities of local authorities, aiming at diagnosing local public financial management. In the context of the increasing decentralization of public finance, local authorities must demonstrate the ability to manage local resources as efficiently as possible, adopting decisions (including financial ones) to respond promptly to citizen needs. For this reason, we set out to present an analysis model aimed at accustoming local decision-makers with the specific tools and methods and assisting them in gaining awareness of the benefits of such analyses. Empirical research shows that local authorities, due to the low income generation capacity, face a shortage of own resources, creating dependency on the state budget. Moreover, it has been demonstrated that that lack of resources limits both the investment capacity and the decision-making autonomy of local authorities in prioritizing spending. The analysis conducted in terms of performance indicators has revealed low level of local government involvement in stimulating economic activity in the community under examination.