Skip to main navigation menu Skip to main content Skip to site footer

Fiscal Sustainability of Local Governments in the Visegrad Group Countries



Objective: The main goal of the article is to assess the level of fiscal sustainability at the local government level in the Visegrad Group (V4) economies.
Research Design & Methods: Two different methods of fiscal sustainability measures were used in the article to verify whether the local government deficit is sustainable: estimations of the no-Ponzi conditions, and calculations of the threshold primary balance. The research period covered the years 2001-2016. Data were taken from the Eurostat database.
Findings: Three out of four V4 countries met the initial no-Ponzi condition. The sums of discounted primary balances of their local governments were positive (Poland was the only exception). However, those sums were insufficient to cover the initial debt volume. It was possible in Hungary only. The Ponzi scheme was significantly reduced during the recovery time after the financial crisis of 2008-2009.
Implications & Recommendations: Generally, all the countries showed the potential to produce primary surpluses at the local level and they have been generally able to stabilise the local debt to GDP ratio. However, these surpluses in the Czech Republic, Slovakia and Poland were insufficient to cover the initial level of debt. Especially Poland should try to generate higher primary local surpluses to avoid the Ponzi scheme and increase the level of fiscal sustainability at the local government level in the future.
Contribution & Value Added: The originality of this work lies in using the Ponzi scheme and the values of the threshold primary gap to assess the fiscal sustainability of local government levels in the Visegrad Group Economies.


primary net lending, public debt, threshold primary balance, no-Ponzi condition, sustainability, Visegrad countries (V4)



  1. Adam, A. (2015). Approaches of public finance sustainability taking into account the current eco-nomic context. Financial Studies, 19(1), 93-101.
  2. Afonso, A., & Jalles, J.T. (2016). The elusive character of fiscal sustainability. Applied Economics, 48(28), 2651-2664.
  3. Baglioni, A., & Cherubini, U. (1993). Intertemporal budget constraint and public debt sustainability: the case of Italy. Applied Economics, 25(2), 275-283.
  4. Barnhill Jr, T.M., & Kopits, G. (1998). Assessing fiscal sustainability under uncertainty. Journal of Risk, 6(4), 31-54.
  5. Barro, R J. (1989). The Ricardian approach to budget deficits. Journal of Economic Perspectives, 3(2), 37-54.
  6. Blanchard, O.J. (1990). Suggestions of a new set of fiscal indicators. OECD Working Papers, 79, 1-34.
  7. Bohn, H. (1991). The sustainability of budget deficits with lump-sum and with income-based taxation. Journal of Money, Credit and Banking, 23(3), 580-604.
  8. Bohn, H. (1995). The sustainability of budget deficits in a stochastic economy. Journal of Money, Credit, and Banking, 27(1), 257-271.
  9. Bohn, H. (2007). Are stationarity and cointegration restrictions really necessary for the inter-temporal budget constraint?. Journal of Monetary Economics, 54, 1837-1847.
  10. Burnside, C. (Ed.). 2005. Fiscal sustainability in theory and practice. A handbook. Washington, D.C.: The World Bank.
  11. Chalk, N., & Hemming, R. (2000). Assessing fiscal sustainability in theory and practice. IMF Work-ing Papers, WP/00/81, 1-27.
  12. Chen, P-F. (2016). US fiscal sustainability and the causality relationship between government expenditures and revenues: a new approach based on quantile cointegration. Fiscal Studies, 37(2), 301-320.
  13. Collard, F., Habib, M., & Rochet, J-C. (2015). Sovereign debt sustainability in advanced economies. Journal of the European Economic Association, 13(3), 381-420.
  14. Crosby, A., & Robbins, D. (2013). Mission impossible: monitoring municipal fiscal sustainability and stress in Michigan, Journal of Public Budgeting. Accounting & Financial Management, 25(3), 522-555.
  15. DeJong, D.N., Nankveris, J.C., Savin, N.E., & Whiteman, C.H. (1992). The power problem of unit root tests in time series with autoregressive errors. Journal of Econometrics, 53, 323-343.
  16. Elliott, G., Rothenberg, T., & Stock, J. (1996). Efficient tests for an autoregressive unit root. Econ-ometrica, 64(4), 813-836.
  17. Eurostat. (2017). Structure of government debt. Statistics Explained. Retrieved on February 17, 2018 from
  18. Fan, J., & Arghyrou, M.G. (2013). UK Fiscal Policy Sustainability, 1955-2006. The Manchester School, 81(6), 961-991.
  19. Gevorkyan, A.V. (2010). Fiscal policy in transition economies: opportunities for sustainable devel-opment. Proceedings of the Northeast Business and Economics Association, 169-174.
  20. Hajdenberg, A., & Romeu, R. (2010). Parameter estimate uncertainty in probabilistic debt sustain-ability analysis. IMF Staff Papers, 57(1), 61-83.
  21. Holmes, M.J., Otero, J., & Panagiotidis, T. (2010). Are EU budget deficits stationary?. Empirical Economics, 38(3), 767-778.
  22. Jankovics, L. (2016). Local government finances in Hungary: from the culprit of fiscal slippages to
  23. a source of stability?. Society & Economy, 38(4), 455-478.
  24. Ji, H., Ahn, J., & Chapman, J. (2016). The role of intergovernmental aid in defining fiscal
  25. sustainability at the sub-national level. Urban Studies, 53(14), 3063-3081.
  26. John, J., & Kurian, N.J. (2009). Sub-national fiscal sustainability in a globalised setting. Cambridge, UK: Cambridge Scholars Publishing.
  27. Krajewski, P., Mackiewicz, M., & Szymańska, A. (2016). Fiscal Sustainability in Central and Eastern European Countries – a Post-Crisis Assessment. Prague Economic Papers, 25(2), 175-188.
  28. Kremers, J.J.M. (1989). U.S. Federal Indebtedness and the Conduct of Fiscal Policy. Journal of Monetary Economics, 23(2), 219-238.
  29. Legrenzi, G. & Milas, C. (2012). Nonlinearities and the sustainability of the government’s inter-temporal budget constraint. Economic Inquiry, 50(4), 988-999.
  30. Maličká, L. (2016). Searching for fiscal decentralization constraining effect on local expenditure: case of Visegrad countries. Scientific Papers of the University of Pardubice. Series D. Faculty of Economics & Administration, 23(38), 68-80.
  31. Martins-da-Rocha, V-F., & Vailakis, Y. (2012). On Ponzi schemes in infinite horizon
  32. collateralized economies with default penalties. Annals of Finance, 8(4), 455-488.
  33. McCallum B.T. (1992). Are Bond-financed Deficits Inflationary?: A Ricardian Analysis. Journal of Political Economy, 92(1), 123-134.
  34. Minea, A., & Villieu, P. (2010). Endogenous growth, government debt and budgetary regimes:
  35. A corrigendum. Journal of Macroeconomics, 32(2), 709-711.
  36. Molendowski, E., & Stanek, P. (2012). Globalny kryzys finansowo-gospodarczy i strefy euro a sy-tuacja fiskalna nowych państw członkowskich (UE-10), (Recent financial and economic crisis and its impact on the fiscal sustainability the new member states [EU-10]). Acta Universitatis Lodziensis Folia Oeconomica, 273, 267-284.
  37. Moździerz, A. (2015). Strengthening the Post-crisis Fiscal Rules - the Case of Spain, Slovakia and Sweden. Equilibrium. Quarterly Journal of Economics and Economic Policy, 10(2), 31-52.
  38. Nam, C.W., & Parsche, R. (2001). Municipal Finance in Poland, the Slovak Republic, the Czech Republic and Hungary: Institutional Framework and Recent Development. MOST: Economic Policy in Transitional Economies, 11(2), 143-164.
  39. Neck, R., & Sturm, J-E. (2008). Sustainability of public debt. Cambridge, MA: Massachusetts
  40. Institute of Technology.
  41. O’Connell, S.A., & Zeldes, S.P. (1988). Rational Ponzi games. International Economic Review, 29(3), 431-450.
  42. Okubo, D. (2010). Fiscal sustainability and local government. National Civic Review, 99(4), 34-39.
  43. Poniatowicz, M. (2011). Ukrywanie długu jednostek samorządu terytorialnego w Polsce – problem realny czy marginalny? (Concealment of local authority debt in Poland – a real problem or
  44. a marginal one?). Ekonomiczne Problemy Usług, 76, 203-216.
  45. Pospisil, R., Oancea, B., & Dragoescu, R.M. (2017). The Current Sustainability of Local Bugets in the Czech Republic, 17th International Conference – Globalization and its Socio-Economic Conse-quences, University of Zilina, Slovakia.
  46. Potrafke, N., & Reischmann, M. (2015). Fiscal transfers and fiscal sustainability. Journal of Money, Credit and Banking, 47(5), 975-1005.
  47. Rowley, C.K., Shughart, W.F., & Tollison, R.D. (Eds.) (2002). The Economics of Budget Deficits, Cheltenham, UK: Edward Elgar.
  48. Sávai, M. (2016). Short-term Fiscal Sustainability of V4 Countries. European Financial and Account-ing Journal, 2016(3), 169-182.
  49. Sroka, W., & Pogan, P. (2015). Nierównowaga finansów samorządowych a poziom zrównoważenia rozwoju gmin wiejskich województwa małopolskiego, (Imbalance of self-government finance versus level of sustainable development of the rural communes in Małopolska province). Stworarzyszenie Ekonomistów Rolnictwa i Agrobiznesu. Roczniki Naukowe, 17(4), 288-294.
  50. Steger, G. (2012). Redirecting public finance towards a sustainable path. OECD Journal on
  51. Budgeting, 2, 61-67.
  52. Yan Tang, S., Rubio-Cortés, G., Callahan, R., Pisano, M., & McGrath, M. (2014). Key Findings on Fiscal Sustainability for Local Governments in Southern California. National Civic Review, 103(3), 3-13.
  53. Tanner, E., & Samake, I. (2008). Probabilistic sustainability of public debt: a vector autoregression approach for Brazil, Mexico and Turkey. IMF Staff Papers, 55(1), 149-182.
  54. Trehan, B., & Walsh, C.E. (1988). Common trends, the government’s budget constraint, and reve-nue smoothing. Journal of Economic Dynamics and Control, 12(2/3), 425-444.
  55. Tsuchiya, Y. (2016). Directional analysis of fiscal sustainability: revisiting Domar’s debt
  56. sustainability condition. International Review of Economics and Finance, 41, 189-201.
  57. Uryszek, T. (2015a). Long-term sustainability of public finance in the Central and Eastern EU member states. Comparative Economic Research, 18(4), 47-61.
  58. Uryszek, T. (2015b). Samodzielność finansowa jednostek samorządu terytorialnego. Polska na tle wybranych krajów Unii Europejskiej (Financial autonomy of local and regional governments. Poland in the light of the selected EU economies). Finanse Komunalne, 12, 5-14.
  59. Westerlund, J., & Prohl, S. (2010). Panel cointegration tests of the sustainability hypothesis in rich OECD countries. Applied Economics, 42(11), 1355-1364.
  60. Wigger, B.U. (2009). A note on public debt, tax-exempt bonds, and Ponzi games. Journal of Mac-roeconomics, 31(3), 492-499.
  61. Wójtowicz, K. (2015). System planowania przestrzennego a stabilność fiskalna polskich gmin (Spatial planning system vs. fiscal sustainability of Polish local governments). Research Pa-pers of the Wroclaw University of Economics / Prace Naukowe Uniwersytetu Ekonomicznego we Wroclawiu, 404, 311-327.
  62. Wójtowicz, K. (2016). Prognozowanie skutków finansowych miejscowych planów zagospodaro-wania przestrzennego a problem zapewnienia stabilności fiskalnej gmin w Polsce
  63. (Forecasting of fiscal consequences of local spatial plans vs. the problem of achieving fiscal
  64. sustainability of local governments in Poland). Research Papers of the Wroclaw University of
  65. Economics / Prace Naukowe Uniwersytetu Ekonomicznego we Wroclawiu, 432, 203-211.


Download data is not yet available.