Financial determinants of local government debt in New Zealand
Abstract
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.
Keywords
Acknowledgements
We would like to thank two anonymous referees, the journal editor, the conference participants at the 2017 SAAA/IAAER/AAFA Biennial International Conference, in Central Drakensberg, South Africa and the conference participants at the 2017 Accounting and Finance Association of Australia and New Zealand Annual Conference in Adelaide, Australia for their helpful comments. We are also grateful to Massey University, New Zealand for the research funding provided through the research grant-RM19252.
Citation
Ehalaiye, D., Botica-Redmayne, N. and Laswad, F. (2017), "Financial determinants of local government debt in New Zealand", Pacific Accounting Review, Vol. 29 No. 4, pp. 512-533. https://doi.org/10.1108/PAR-11-2016-0104
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited