How population size influences financial risks in local governments: an empirical study

This article contributes to a better understanding of the factors that shape the financial risk of small- and medium-sized municipalities—an area largely overlooked in the academic literature despite its importance in the European context. The authors show how demographic, socio-economic, political, and systemic factors interact in generating local government defaults. These findings are particularly valuable for improving debt management at the local level and improving the financial sustainability of public services, especially in areas affected by depopulation. This article provides a useful empirical basis for designing policies that strengthen the viability of the most vulnerable municipalities and contribute to slowing their demographic decline. The study is aimed at public managers, legislators, policy-makers, risk analysts, rating agencies, voters, and other stakeholders interested in the solvency and sustainability of local governments. The article will improve understanding of the structural disadvantages of small municipalities and help move toward more equitable and proportionate public financial management strategies.