Global COVID-19 Pandemic and Indebtedness of Municipalities with Extended Power in the Czech Republic

Abstract

Research background: In theory, indebtedness of municipalities is only ever associated with the acquisition of investments. It is advised that indebtedness should be regulated by the state, but there is a risk of limiting investment in local infrastructure. Purpose of the article: According to Act No. 23/2017 Coll., municipalities must regulate their own indebtedness and comply with the fiscal rule on pain of penalty. The aim of this text is to provide an analysis and examine the prospects of compliance with the fiscal rule in 205 municipalities with extended power. The analysis is carried out between 2017 and 2019, the risks of compliance in the following years mainly relate to the emerging economic crisis caused by the COVID-19 pandemic. Methods: Given the subject of the analysis, secondary data was used for the research. Data was taken from the Monitor database operated by the Ministry of Finance of the Czech Republic. The obtained data had been processed using standard statistical methods. Findings & Value added: To date, the indebtedness of municipalities with extended power is not excessive: the mean and median values are still well below the legal limit. Still, there are some municipalities where the legal limit has been exceeded, or whose indebtedness is nearing the limit. In the event of reduced tax revenue, which is to be expected in the coming years, these municipalities will struggle to comply with the fiscal rule. The consequences will include halting or limiting local investment, and/or reducing the quality of local public goods.

Research background: In theory, indebtedness of municipalities is only ever associated with the acquisition of investments. It is advised that indebtedness should be regulated by the state, but there is a risk of limiting investment in local infrastructure. Purpose of the article: According to Act No. 23/2017 Coll., municipalities must regulate their own indebtedness and comply with the fiscal rule on pain of penalty. The aim of this text is to provide an analysis and examine the prospects of compliance with the fiscal rule in 205 municipalities with extended power. The analysis is carried out between 2017 and 2019, the risks of compliance in the following years mainly relate to the emerging economic crisis caused by the COVID-19 pandemic. Methods: Given the subject of the analysis, secondary data was used for the research. Data was taken from the Monitor database operated by the Ministry of Finance of the Czech Republic. The obtained data had been processed using standard statistical methods. Findings & Value added: To date, the indebtedness of municipalities with extended power is not excessive: the mean and median values are still well below the legal limit. Still, there are some municipalities where the legal limit has been exceeded, or whose indebtedness is nearing the limit. In the event of reduced tax revenue, which is to be expected in the coming years, these municipalities will struggle to comply with the fiscal rule. The consequences will include halting or limiting local investment, and/or reducing the quality of local public goods.