The financial sustainability of local authorities in England and Spain: a comparative empirical study
| Author | Andrés Navarro Galera,Manuel Pedro Rodríguez Bolívar,María Deseada López Subires,Laura Alcaide Muñoz |
| Date | 01 March 2021 |
| DOI | 10.1177/0020852319834721 |
| Published date | 01 March 2021 |
| Subject Matter | Articles |
Review of
Administrative
Article
Sciences
International Review of Administrative
The financial
Sciences
2021, Vol. 87(1) 97–114
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sustainability of
The Author(s) 2019
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local authorities in
DOI: 10.1177/0020852319834721
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England and Spain:
a comparative
empirical study
Manuel Pedro Rodrıguez Bolıvar
University of Granada, Spain
Marıa Deseada L
opez Subires
University of Granada, Spain
Laura Alcaide Mu~
noz
University of Granada, Spain
Andre´s Navarro Galera
University of Granada, Spain
Abstract
In recent years, the financial sustainability of local authorities has been recognised as a
concept of crucial importance in ensuring that public services may continue to be
delivered to future generations. Although many European countries have implemented
programmes to enhance their financial sustainability, local authorities are characterised
by differing administrative traditions and achieve diverse outcomes in response to the
reforms made. Taking a comparative approach, the present study identifies institutional,
macroeconomic and microeconomic factors that might influence local authorities’
financial sustainability in England and Spain in order to determine and explain similarities
Corresponding author:
Manuel Pedro Rodrıguez Bolıvar, Department of Accounting and Finance, Campus Universitario de La
Cartuja, 18011 Granada, University of Granada, Spain.
Email: manuelp@ugr.es
98
International Review of Administrative Sciences 87(1)
and differences in the drivers and risk factors for financial sustainability in local author-
ities’ provision of public services.
Points for practitioners
This article is based on three major theories (agency theory, neo-institutional theory
and stakeholder theory) related to the institutional, macroeconomic and microeco-
nomic factors determining financial sustainability and aims to identify these factors
comparing different contexts (English and Spanish contexts). This identification of fac-
tors that influence municipal financial sustainability could clarify what policymakers
might have done to prevent the crisis, what they should do to prevent similar failures
in the future and how the long-term provision of public services may be ensured.
Keywords
financial sustainability, intergenerational equity, local authorities
Introduction
The global financial and economic crisis and the resulting search for greater
efficiency, accountability and local democracy in public administrations have
highlighted the importance of financial sustainability (FS) in public sector man-
agement (Rodrıguez et al., 2014). This concept is especially significant in local
authorities (LAs), which manage large budgets and high volumes of deficit and
debt (Mu~
noz-Ca~
navate and Hıpola, 2011), and provide a wide variety of public
services. To enhance FS in LAs, countries such as the UK and Spain have
implemented reforms based on the New Public Management (NPM) model
(Laffin, 2016). However, these countries have differing administrative and
organisational traditions, and this factor could influence the policy changes
applied in search of sustainability (Dası et al., 2013). In this respect, practice
in the UK model is based on the Anglo-Saxon (managerial) tradition,
while LAs in Spain are characterised by the Southern European/Continental
(bureaucratic) culture.
We examined and compared the FS of LAs in Spain and England (municipal-
ities in Scotland, Northern Ireland and Wales were excluded from this analysis).
This inter-country comparison reflected differences in their implementation of
NPM, in the devolution of competences to LAs (HM Treasury, 2015b), in
the public services provided and in the budget cuts applied (Randma-Liiv
and Kickert, 2017). Although sustainability programmes are expected to produce
convergence towards an isomorphic equilibrium among European Union (EU)
members, previous studies have failed to explain why LAs in different countries
obtain contrasting outcomes in the presence of similar changes to their adminis-
trative practices (Liguori, 2012).
Rodrıguez Bolıvar et al.
99
The identification of factors that influence municipal FS could clarify what
policymakers might have done to prevent the crisis, what they should do to prevent
similar failures in the future (Randma-Liiv and Kickert, 2017) and how the
long-term provision of public services may be ensured. This information would
enable policymakers and public managers to strengthen the factors promoting FS
(drivers) and to reduce the negative effects of risk factors by reducing
costs, increasing revenues or making use of reserves, among other measures
(EU, 2016), avoiding subsequent painful readjustments.
The analysis presented in this article is based on three major theories related to
the institutional, macroeconomic and microeconomic factors determining FS:
agency theory, neo-institutional theory and stakeholder theory. Agency theory
assumes compliance-oriented self-regulation models in which the public entity
must conform to a set of behaviour patterns imposed by external actors, such as
citizens, third-party evaluators or accreditation organisations (Bies, 2010).
Both neo-institutional theory and agency theory seek to explain how and why
innovations are adopted (Carpenter and Feroz, 2001), arguing that organisations
respond to external pressures by adopting structures and practices that are con-
sidered legitimate and socially acceptable, thus producing homogeneous practices
and structures (Coase, 1984). Stakeholder theory is based on the understanding
that a stakeholder is any group or individual who may affect or be affected by an
organisation’s efforts to achieve its goals (Freeman, 1984).
In this field of research, most of the studies conducted have been normative
(Rodrıguez et al., 2014) or have focused on the FS of specific countries (Navarro-
Galera et al., 2016). However, very few comparative studies have been undertaken
to analyse the FS of LAs in different countries. The aim of the present article is to
address this perceived research gap. To do so, we examine the similarities and
differences in the main factors that impact on the FS of LAs in England and Spain.
The different contexts facing LAs in England and Spain and
their influence on FS
Agency theory explains how institutional and macroeconomic variables lead pol-
icymakers and public managers to conform with the requirements of external
actors by establishing compliance-oriented models of self-regulation (Bies, 2010)
and how the relationship between agents and principals can best be exploited to
enable the institution to achieve its goals (Eisenhardt, 1985). Despite the common-
ly observed context of asymmetric information about the FS of LAs, taxpayers
expect to receive high-quality public services, delivered appropriately, effectively
and efficiently. The macroeconomic variables could be considered a useful means
for citizens to monitor and respond to policymakers’ and public managers’ success
in providing high-quality public services.
The question of FS has come to the forefront of government attention in
response to external factors (Hoffman, 2001), to calls for greater transparency in
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International Review of Administrative Sciences 87(1)
public functions and to the need to ensure the long-term provision of public
services. In this regard, neo-institutional theory argues that organisations adopt
structures and practices that are considered legitimate and socially acceptable, thus
creating homogeneous practices and structures (Coase, 1984). Therefore, the anal-
ysis of institutional and macroeconomic factors that influence FS would help iden-
tify and characterise practices and policies applied in this respect.
According to agency and neo-institutional theories, the differing institutional
and macroeconomic contexts in which English and Spanish LAs provide public
services could account for the differences observed in their respective levels of FS.
While the institutional setting concerns the structural variables that characterise a
municipality (administrative culture, competences, funding scheme and political
control), the macroeconomic setting involves the external short-term variables that
could influence FS. The first research question considered in this study is:
RQ1: Do institutional and macroeconomic factors influence the FS of LAs?
The institutional setting is a crucial aspect of our analysis as the diverse adminis-
trative traditions and organisational cultures within which LAs operate in England
and Spain could strongly influence the factors affecting FS. In the Anglo-Saxon
administrative culture, the public sector is characterised by the decentralisation of
public services and the use of private management models. Southern European
countries, in contrast, tend to adopt a hierarchical, bureaucratic public adminis-
tration, whereby the central government establishes general rules for public serv-
ices and receives the majority of tax revenues (Ortiz-Rodriguez et al., 2015). Under
agency theory, this difference in administrative and organisational settings is
reflected in relationships between principals and agents; therefore, English LAs
and Spanish LAs will manage their FS in different ways. Indeed, as the practices
considered legitimate and socially acceptable in each country may differ, English
LAs will tend to act in ways that are similar to each other, but different from those
of Spanish LAs. Therefore, the first hypothesis of this article is:
H1: Different...
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