Financial Sustainability of Local Government Units and Their Investment Capacity: A Comparative Analysis of Municipalities and Cities with County Rights in Poland

This study examines the relationship between the financial sustainability of local government units (LGUs) and their investment capacity, focusing on differences between municipalities and cities with county rights in Poland. It investigates how operating surplus, debt-servicing costs, and revenue autonomy are associated with investment capacity and whether these relationships differ across LGU types. The analysis uses data for Polish municipalities and cities with county rights for 2018–2024 obtained from the Local Data Bank of Statistics Poland. Various panel regression specifications were employed, supplemented by descriptive Pearson correlation analysis. The results indicate a consistent positive tendency in the relationship between operating surplus and investment capacity, whereas higher debt-servicing costs were significantly associated with lower investment capacity. Cities with county rights exhibited higher investment capacity than municipalities, although the strength of the evidence varied depending on the measure used. Revenue autonomy, in contrast, was found to be negatively associated with investment capacity. This study provides a comparative assessment of the relationship between financial sustainability and investment capacity, offering implications for local fiscal policy and future research.