Financial determinants of local government debt in New Zealand

• Published in: Pacific accounting review Vol. 29; no. 4; pp. 512 - 533
• Main Authors: Ehalaiye, Dimu, Botica-Redmayne, Nives, Laswad, Fawzi
• Format: Journal Article
• Language: English
• Published: Palmerston North Emerald Publishing Limited 01.01.2017; Emerald Group Publishing Limited
• Subjects: Accountability; Borrowing; Capital expenditures; Councils; Debt financing; Economic models; Election results; Fiscal policy; Funding; Governmental accounting; Infrastructure; Interest rates; International finance; Local elections; Local government; Moral hazard; Municipal finance; Municipal government; Politics; Taxpayers; Theory; New Zealand; New Zealand; Rates; Debt; Local government; Infrastructural assets
• ISSN: 0114-0582; 2041-5494
• DOI: 10.1108/PAR-11-2016-0104

Purpose The purpose of this paper is to investigate the financial determinants of local government debt in New Zealand. Design/methodology/approach To investigate the financial determinants of local government debt in New Zealand, the authors analyse the relationship between key financial variables with local government debt in New Zealand based on the theories of fiscal accountability and moral hazard using a panel data methodology, specifically the pooled ordinary least squares regression model. Findings The findings suggest that council income is the major financial determinant of local government borrowing in New Zealand rather than infrastructural spending and that during the global financial crises (GFC) borrowing levels of New Zealand local councils was not significantly impacted. However, the findings indicate that post the GFC, low interest rates have stimulated increased borrowing activity by New Zealand local governments to fund infrastructure. Originality/value This paper is the first to examine the determinants of local government debt in New Zealand. The findings of this study contribute to better understanding of local government/municipality debt in New Zealand and internationally by providing evidence on the financial determinants of debt of local governments and the indirect use of government policy to control local government borrowing. The findings of this study are anticipated to affect local government practices and national government policies in relation to local government finances.