Developing an alert system for local governments in financial crisis

Abstract

This article presents a new model which will show whether a local authority is heading for financial trouble. The model is simple for national audit bodies to use and provides an early warning of financial tensions allowing corrective action to be taken before there is a crisis.

Acknowledgments

We are grateful for the comments by Professor Jane Broadbent and anonymous referees, which contributed greatly to a general overhaul of this article. We are also grateful to the financial support (SEJ2007–67441/ECON) of the Ministerio de Educación y Ciencia (Spain).