The Financial Sustainability of Local Governments With Declining Populations

It is often assumed – especially in the grey-literature – that local governments with declining populations are likely to also suffer declining financial sustainability. In this paper we test this widely held assumption with reference to both theory and audited financial statement data for the largest state of Australia – New South Wales. In the first stage of analysis, we briefly investigate the importance of context for predicting the likely outcomes of declining populations on financial sustainability for local governments. In the second stage of analysis, we test the predictive capacity of our aforementioned exploration of context with recourse to a rich six-year panel of demographic and finance data. Both results stand in stark contrast to what some might expect. We conclude by enumerating the various important public policy implications arising from our findings as well as highlighting lessons for jurisdictions elsewhere.