Municipal Finances and the Achievement of Quality Education: A Study on Local Determinants

Quality education is fundamental for achieving sustainable development, yet its success is heavily dependent on the availability of resources. Financial sustainability plays a critical role in this context, as it ensures local governments have the necessary capacity to allocate and manage resources effectively. Therefore, this research has analysed how municipal financial sustainability and contextual conditions relate to the fulfilment of SDG 4 on quality education. To this end, the research draws on contingency theory, distinguishing between internal financial capacities and external socio-economic and institutional factors, and on institutional theory to capture the social, political and regulatory pressures under which municipalities operate. Our work indicates a nuanced relationship: while lower indebtedness supports higher educational outcomes, a higher average payment period (APP) is also associated with better results, highlighting the complex interplay between short-term liquidity and long-term financial burdens. Additionally, citizen income, current transfers, and the presence of social institutions positively affect educational quality, whereas higher tax burdens have a negative impact. Our results are aligned with contingency theory, demonstrating that financial conditions impact local government performance based on the alignment between internal resources and external pressures. Furthermore, the study supports institutional theory, emphasising how external socio-economic and regulatory pressures shape local government actions and influence educational outcomes. The findings offer practical insights for local governments by identifying the conditions under which financial and socio-institutional factors can foster progress toward SDG 4, while also contributing to the academic understanding of how fiscal dynamics affect sustainable development.