Fighting depopulation in Europe by analyzing the financial risks of local governments
| Published date | 01 March 2024 |
| DOI | http://doi.org/10.1177/00208523231158982 |
| Author | Andrés Navarro-Galera,Dionisio Buendía-Carrillo,María Elena Gómez-Miranda,Juan Lara-Rubio |
| Date | 01 March 2024 |
Fighting depopulation in
Europe by analyzing the
financial risks of local
governments
Andrés Navarro-Galera
University of Granada, Spain
Dionisio Buendía-Carrillo
University of Granada, Spain
María Elena Gómez-Miranda
University of Granada, Spain
Juan Lara-Rubio
University of Granada, Spain
Abstract
Throughout Europe, one of the main problems facing policymakers is that of falling rural
populations. In many cases, this is aggravated by high levels of local government borrowing.
Although researchers have sought to determine the causeso fthis debt, much remains to be
known about the factors influencing the default risk of small- and medium-sized towns, infor-
mation that would help them formulate policies to combat the loss of population. The aim of
our study is to identify factors relevant to this default risk. We analyzed demographic, socio-
economic, and financial factors in a sample of 6456 Spanish local governments by their popu-
lation size. Our findings show that financial policies applied to reduce this risk should vary
according to the population size, as certain factors exert a specificinfluence on smaller muni-
cipalities. Nevertheless,socioeconomic and financial variables have more impact on default risk
than demographic factors. Our findings are novel and useful for all concerned in combating the
depopulation of rural areas in Europe, owing to the relevance of conclusions for the design of
public policies based on the sustainability of public services in small municipalities.
Corresponding author:
Juan Lara-Rubio, Department of Financial Economics and Accounting, Faculty of Economics and Business
Studies, University of Granada, Campus Universitario de Cartuja, s/n, Postcode 18071 Granada, Spain.
Email: juanlara@ugr.es
Article
International
Review of
Administrative
Sciences
International Review of Administrative
Sciences
2024, Vol. 90(1) 48–64
© The Author(s) 2023
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/00208523231158982
journals.sagepub.com/home/ras
Points for practitioners
The measurement of the default risk in local governments revealsvery relevant information for
the design of public policies against depopulation. Socioeconomic and financial variables have
more impact on default risk than demographic factors. The evolution of the measurement of
default risk reveals that policies against depopulation must be definedbasedonthesizeofthe
municipalities. The influencing factors on the default risk are interesting to decide if finance gov-
ernment investments through loans that allow the repopulation of small municipalities.
Keywords
default risk, depopulation, local governments, population size effect
Introduction
International organizations have warned that Europe faces a major demographic problem,
namely the depopulation of small- and medium-sized towns (SMSTs). However, until
recently, depopulation has been an issue that has not received great attention, either
from the academic point of view or from the political or social (Miyauchi et al., 2021;
Pinilla and Sáez, 2017). The European Union (EU) has over 100,000 municipalities, of
which 95% have fewer than 20,000 inhabitants, and countries with a majority of rural
areas represent 33% of the European population (Eurostat, 2022b). The European
Observation Network for Territorial Development and Cohesion (ESPON) reported
that this depopulation has been greatly aggravated by agricultural restructuring and
the concentration of employment in large cities. Indeed, in most European countries,
demographic growth has been lower in rural than in urban areas, and population is
more concentrated in or around larger cities and metropoles; meanwhile, immigration
will not compensate for depopulation and ageing in the rural parts of southern Europe
(ESPON, 2020). Considering these problems of depopulation, and in line with the UN
Sustainable Development Goals (2019), the OECD (2019) recommended that studies
be conducted of demographic, socioeconomic, and financial factors to design public
policies aimed at avoiding the disappearance of small municipalities.
In this context, too, international organizations (IMF, 2021; OECD, 2021a; UN, 2021;
World Bank, 2021) and research studies (Buendía-Carrillo et al., 2020; Lara-Rubio et al.,
2017) have concluded that the financial viability of public services is essential to the sustain-
ability of SMSTs. This financial sustainability has three dimensions: service, revenue, and
debt (IFAC, 2013). So, policies aimed at improving these dimensions could contribute to
improving the financial sustainability of government services in SMSTs, thus potentially
leading to an increase in the population living in rural areas affected by depopulation.
Similarly, ESPON (2020) stated that access to government social and economic ser-
vices is a key factor in the quality of life in European territories. Thus, ESPON (2020)
and the OECD (2019) concluded that sparsely populated areas tended to have poor
access to public services, mainly owing to insufficient income to meet citizens’
demands, which often led to their residents moving to larger cities. In turn, this drop
Navarro-Galera et al.49
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