Scoring the default risk of local authority

In the Nineties, almost all public administrations were affected by a change that made municipalities more responsible in using public resources. More recently, the global crisis and the gradual cuts in funding from the State led to significant repercussions on the budgets of local authorities with an increasing number of defaults. The Italian government introduced the procedure of “financial default” to rescue local authorities in financial difficulties from 1989. However, to date, a methodology to constantly monitor the local authorities’ "health" and to prevent financial defaults has not yet been formalized. As previous studies highlighted a close link between financial condition and service delivered to citizens, the study aims to construct a set of specific indicators to judge the default risk of Italian LAs in order to prevent defaults. In this research we use a deductive method. The research was carried out in eight different steps according to a logical process of identifying the risk indicators and the consequent risk ranges. The results are significant as they clarify the situation leading potentially to default and they propose a set of specific risk indicators to evaluate and to prevent the risk of default. This logical process could easily be adopted at an international level, with the necessary modifications for specific accounting regimes