Modelling methodology for the analysis of local government debt compliance

Abstract To mitigate the difficulty of analysing local government debt, this article uses a methodology that makes statistical models more suitable for use with financial data, improving their reliability and ease of construction. The article illustrates the application of this methodology by identifying the factors that explain the unintelligible variation in Portuguese local government debt, showing how to identify which local governments have the most unpredictable variation in debt, and how to construct reliable and easy-to-use municipal Z-scores. JEL Classification: C18, C21, C51, C52, C58, H68, H74, M48