Latitude in local authority finances: A regional study in the province of Turku and Pori, Finland

Abstract

This paper focuses on the connections between the financial latitude of districts located in the province of Turku and Pori and regional parameters. A joint indicator of financial latitude is used. It is composed of four factors: rate of taxation, taxable income per person, working surplus and financial.

The province of Turku and Pori can be regarged as constituting a good object of research into the regional manifestations of financial latitude thanks to the following features: The region is versatile in geographical terms, the regions is sufficiently large and has distinct functional boundaries, the local government districts vary in size and population over a wide scale, and various degrees of development are observed in the region.

The correlation between financial latitude and the background parameters is impaired by the fact that it is always possible for a local authority to affect the magnitude of its financial latitude through its public spending policies. Authorities characterised by a small population, a net decline in population, an underdeveloped economic structure and a low hierarchical status can ensure a satisfactory financial latitude by pursuing careful, economical spending policies. The latter type of strategy seems to be slightly more common in small authorities which of course compensates for the poorer financial latitude which they would otherwise have by comparison with larger ones. On the other hand, an authority with a good natural financial latitude may pursue policies which emphasise major investments and thus achieve a poor actual financial latitude relative to its potential. Policies of this kind are sometimes attributable to the central government funding, as a local authority engaged in promoting development and undertaking major investments is also entitled to larger allocations of government money, which act in turn as a stimulus to its development. In addition to public spending policy employed, financial latitude is also dependent on the level of development reached by a district at given point in time.