Sustainability of Local Public Finances from the Perspective of Territorial Disparities in the Rural Areas of Romania

Abstract

The sustainability of local public finances is of general interest in the context of the socio-economic transformations of recent decades. In former communist countries such as Romania, where there has been no real reform of local government, this interest is heightened by the strong disparities between administrative units that have adapted to the new context and those that, for various reasons, have become dependent on government subsidies to be able to function. Using information derived from the budget execution for 2019–2023 at the level of the administrative units in rural areas, this study analyzes the structure of income and expenditure budgets. The territorial disparities are demonstrated by typological analyses showing strong regionalization, with a well-defined income or expenditure structure profile. In the same sense, multivariate analysis which uses a series of illustrative demographic and socio-economic profiles as explanatory variables shows significant correlations with the structure of local budgets. It is thus possible to distinguish certain regional patterns, depending on the level of development, geographical position, or quality of infrastructure. The study results demonstrate the need for genuine administrative reform to reduce the dependence of local budgets on subsidies and increase their self-sustainability, especially in rural areas.

1. Introduction

The stability and sustainability of local public finances is a subject of the highest scientific interest. The definition of these terms, long considered vague and confusing [1], has taken on an increasingly coherent contour as the role of a sustainable local budget in the balanced development of localities has been emphasized. In this situation, the global interest in fiscal decentralization is growing, with the aim that its implementation should foster local performance and improve economic, social, and territorial cohesion, fundamental pillars of harmonious development. Fiscal decentralization influences local spending behavior, leads to more responsible and efficient local spending, improves local performance, and contributes to economic growth.

In this study we investigated the components of local budgets in rural Romania, focusing on the assumption of responsibilities in terms of revenues and expenditures between central and local governments and also including other dimensions to emphasize regional disparities in fiscal imbalance. There are two levels in the construction of local budgets. One relates to locally realized revenues and expenditures and the other to what is received from the central level. The balancing of local budgets is a topical and much-debated issue. There is a divide between communities that realize sufficient incomes and those that cannot provide the necessary funds for the costs of maintaining the locality. This dispute occurs on two levels of government: from central to county level and from county to local level. Rural communities that have various economic, social, and demographic advantages that enable them to develop in a continuous and balanced way tend to blame communities that do not earn sufficient income, ignoring the fact that in today’s Europe, the basic concept on which development theory is built is that of economic and social cohesion. This translates into a fundamental principle, namely that economic and social development must be based on a balanced spatial structure, considering that the uneven development of territories reflects the economic weaknesses of the whole, which in turn becomes a source of political and economic instability [2]. The best alternative is solidarity between local communities, solidarity calculated to maintain a balance between regions [3].

After the integration into the European Union, the possibility of using EU funds has created a horizon of expectations on the part of citizens, materialized in rather isolated cases, through projects that have managed to reduce the strong gaps that separate rural and urban areas in Romania [4]. From this point of view, Romania, a country that has been postponing for decades the far-reaching reform of its administrative–territorial structures inherited from the communist period, has seen an unprecedented increase in disparities in recent decades, in favor of the capital region of Bucharest, which concentrates the bulk of foreign investment and accounts for an ever-increasing share of GDP. The significant disparities in living standards, economic dependence, and mass emigration offer an even less optimistic outlook for Romania’s rural areas, which are less willing to adapt to the new socio-economic changes. The phenomenon is also found in many central-eastern European countries, where the transition from a centralized planned economy under an authoritarian regime to a market economy and democratic system has significantly affected the economies of rural areas [5]. For a long time, rural spaces have been perceived as stable, with a high degree of inertia, which avoid modernization impulses in comparison to urban areas that experience pronounced dynamics. However, this dichotomy does not seem to be legitimized at present, as the rural space is also constantly undergoing extensive transformations in terms of population, economic activities, and even the mentality of its inhabitants and the actions of local decision-makers.

Starting from these premises, the present study proposes a double analysis of the structure of the revenue and expenditure budget at the level of the basic administrative units in the Romanian rural areas (2861 communes with self-administration), using the average of 2019–2023.

The first, descriptive analysis aims to highlight the manifestation of regional patterns and territorial disparities. The second analysis, multivariate, proposes to explain these differences by socio-demographic, economic, or geographical particularities captured by a series of indicators aimed at observing correlations that attest to the autonomy and efficiency of budget execution, the capacity to absorb European funds, or the dependence on government subsidies. Studies focusing on the perspective of regional development have already shown that the potential of mobilizing own revenues is not sufficient for sustainable development and reducing disparities (at the regional or local level) in the absence of real administrative reform [6].

Considering this, the working hypothesis can be formulated as follows: the distribution of the structure of local budgets in Romania strongly depends on the level of development, the geographical position in relation to the main urban centers, and socio-demographic characteristics. The share of each expenditure category (staff expenditure, social costs, capital expenditure, goods and services, etc.) is closely linked to the potential of own revenues and the absorption of EU funds. They are assumptions that have been analyzed at a theoretical or applied level in various specialized works [7,8,9,10].

As regards the structure of the paper, it is presented as follows: Section 2 provides a brief review of the literature on fiscal decentralization, local governments’ behavior, the geography of finance, and territorial solidarity; Section 3 presents the methods, variables, and data sources used to achieve the aforementioned objectives; Section 4, the broadest, presents and summarizes the results of the empirical study conducted at the level of rural administrative units in Romania in the period 2019–2023. In the Section 5, we formulate the conclusions of the study and potential implications for local policies.

2. Literature Review

The provision and supply of public services and goods by the local authorities, on which life quality mostly depends, are of interest to both economic and social sciences. The interest presented by geography on the same topic is marginal. However, the territorial dimension of fiscal capacity and the need for public expenses are important in the context of powerful social and spatial disparities in relation to public services and quality of life [11]. Thus, the geography of public finance has experienced a revival propelled by the objectives of territorial and social equity [12], after a period of diminished interest in the role played by the government in the economy [13].

There is rapport and a relationship between the state and local public finance, paying even closer attention to providing key services such as education, health, and transport [14]. The allotment of economic resources within a certain spatial and time profile, under conditions of risk and uncertainty, implies a special interest in the form and functions of public finance from a geographical perspective [15]. These concerns, integrated into the “new economic geography” trend, aim to provide some sort of support for the regional development policies [16], in agreement with the ongoing socio-demographic processes, such as demographic aging, whose effects on the balance between tax revenues and public expenditure are still difficult to estimate [17,18]. To the same extent, there has been an increasing interest in measuring the performance of public administration, as there are three individualized essential parts which need to be analyzed in depth: creating the expenditure and income budget, human resources management, and monitoring and quality supervision [19]. In-depth analyses of the sustainability of public finances in the European Union have shown their vulnerability, as there is an imbalance between public expenditure and general incomes or revenue [20], which has not found a solution up to the present day.

It has been noticed that particular attention is also paid to the relations between public and private finances, the correlation between them being seen as a dynamic interface marked by asymmetric power relationships, path-dependent political solutions, the depoliticizing of markets, as well the unequal distribution in space, all these having strong socio-spatial effects [21]. In this context, the topic of the increasingly advancing financialization of public services has raised interest, as public services tend to depend more and more on private investment [22].

A significant role in the increasing interest shown in public administration and local governance was played by the debates on local and regional administration reforms that were present in the Western European states during the 1980s and 1990s [23]. Their purpose was to deepen the decentralization process and to ensure the widest possible autonomy for a better insertion in the global economic circuits. Thus, there was a shift from hierarchical to network governance, with an increased focus on a more efficient use of public finances. As a direct consequence, urban–rural disparities have increased, which in turn has called for fiscal decentralization and the promotion of regional convergence, provided that the principles of good territorial governance are applied [24].

The effect of income distribution and tax policies on economic growth is well known and intensively analyzed [25,26,27], while low-income regions need subsidies to ensure the smooth functioning of public services. This further leads to discussions on subsidiarity and territorial solidarity that can balance disparities, thus maintaining the overall impression of the relative stability of local public finances. In this respect, large-scale studies on the economic growth and development of advanced countries show a stable share of public expenditure of GDP and a stable public debt ratio, which are considered to be sufficient factors to prove the sustainability of public finances [28]. There is a strong correlation between tax revenues and gross domestic product, demonstrating the role played by disparities in development and the need to optimize the tax burden in the well-known context of low tax collection capacity in Romania [29]. Deepening these gaps can lead to further depopulation of isolated rural areas and the total dependence of some local communities on the state. The existence of some support programs at the European level is not enough in the absence of a genuine reform of local public administration, which is often incapable of attracting such funds [30]. In this situation, fiscal sustainability becomes much more important, as the recent pandemic crisis has shown [31]. Fiscal consolidation as a result of reducing government expenditure, increasing own revenues, and reducing public debt has become imperative, being compatible with the principles of sustainable development. In this context, some studies point out the need for a prudent fiscal policy in Romania, against the background of a deep politicizing of public administration [32,33]. Achieving certain territorial cohesion objectives, such as economic resilience and sustainable financing, which are known to be interlinked, is hampered by inconsistent government policies and weak administrative capacity [34].

Reaching a balance between local budgets is often highly dependent on the political factor but also on the opposition of more developed communities (economically, socially, demographically) which are not willing to lose their upper hand or advantages by limiting the initiation of joint projects, which is completely at odds with the community principles of cohesion [35]. A newly rethought approach of transfer systems to balance local budgets is also necessary, as well as increasing the competencies of local authorities or the efficient use of decentralized resources. There also needs to be some consistency in providing government grants, with coherent strategies, guided by long-term objectives. The analysis of the efficiency and sustainability of public service budgets also revealed at the county level (NUTS 3) a strong dependence on general demographic trends [36]. From this perspective, counties with a larger and more stable number of taxpayers were able to provide public services under better conditions, partially fulfilling the criteria of efficiency and sustainability. It can be expected that locally the differences could be more visible, causing the communities in demographic decline to be completely dependent on the central budget.

3. Data and Methodology

In order to test the hypotheses presented above, detailed information on the structure of local budgets (revenues and expenditures) for the years 2019–2023 provided by the document entitled “Summary on the situation of revenues and expenditures of local budgets by administrative-territorial units” issued by the Ministry of Development, Public Works and Administration [37] has been gathered and processed. This document presents the amounts broken down by categories of revenue and expenditure following the requirements of the authorized financial supervisory institutions. For the analysis of the specific financial potential, we used the total population registered at the last census in Romania as a weighting factor (December 2021). For the multivariate analysis, some information on the structure of the population by age group, level of education, the ratio of certain minorities, as well as the structure of the working population was also used. To all these, data regarding the proximity to major urban areas (county capitals) and access to transport infrastructure were added, expressed by factor scores, as shown in

Table 1. Variables used in factorial analysis—description and source of information.

Type of Variable	Variable	Acronym	Description	Source	Standardization
dependent variable	total income	TI	lei/inhabitant	EVC (2019–2023), period average [37]	Z scores, outliers removed
explanatory variables (structural)	own income	OI	% of total income
	government subsidies	GS
	European funds	EF
	staff expenditure	SE	% of total expenditures
	social assistance expenses	SAE
	projects with European funding	PEF
	capital expenditure	CE
	spending on education, health, and culture	EHC
explanatory variables (drivers)	aging	AG	the share of the population over 65 years of age	RPL 2021 [38]
	population dynamics	PD	the share of population dynamics (1992–2021)
	degree of rurality	AGR	the share of the population employed in agriculture
	Salary income	SI	the share of employees in the total employed population
	level of education	ED	share of people with secondary and higher education
	presence of Rroma communities	RR	the share of the Rroma population
	demographic size	DS	relative to 10,000 inhabitants
	position to the county seat	PCS	expressed in Km	Road Atlas of Romania [39]
	access to major transport routes	AMT	maximum value (1) is granted for railways and European roads, and minimum (0) is given for local roads		factor score

.

For all the analyses included here, the data have been standardized with the maximum value as a landmark after eliminating outliers. The derived databases have been processed using XLStat2019. For the descriptive analysis, three distinct classifications using the agglomerative hierarchical clustering (AHC, made in XLStat2019) option were performed:

-

income structure typology, having as variables: total incomes, estimated in lei/resident; own incomes (% of total); subsidies from the centralized budget (% of total); incomes from European funds (% of total); other incomes (% of total, representing mainly amounts deducted from VAT for balancing budgets);

-

expenditure structure typology, having as variables: total expenditure, estimated in lei/inhabitant; staff expenses (% of total); expenditure on goods and services (% of total); expenditure on social care (%); expenditure on projects with European funding (% of total); capital expenditure (% of total); other expenditure (% of total, mainly financial operations and expenditure from previous years);

-

combined typology, including the income and expenditure structure in which all of the above-mentioned variables have been analyzed.

The first two typologies included 6 categories each, aiming to ensure class homogeneity and a clearly defined profile. The combined typology included 4 categories, differentiated according to the ratio of certain revenues or expenditures that can attest to the sustainability of the budget, or on the contrary, its vulnerability, primarily due to the dependence on government subsidies. The three analyses have been illustrated cartographically using Adobe Illustrator CS2 (12.0), including type profiles, in order to capture territorial distributions, the existence of spatial cleavages, disparities or differences, and the conglomeration of certain categories of income or expenditure. To perform the multivariate analysis the partial least square (PLS) option was selected, which is recommended for series with a large number of explanatory variables, with a high probability of multicollinearity. The expected results were correlation matrices, the quality regression coefficient (R²), the standard deviation, and the distribution of factorial axes.

4. Results and Discussion

In the following, we will analyze the components of local budgets in Romania. We point out that an important role is played by the mass of taxable citizens, which is increasingly small in rural areas dominated by subsistence farming and massive emigration abroad, as well as by tax evasion, which is ineffectively combated by the authorities. Often the costs and expenses of the administrative apparatus are beyond the means of aging communities in areas that seem inevitably heading towards depopulation [40].

4.1. Descriptive Analysis of the Most Important Components of the Local Budget

4.1.1. Income Distribution

The distribution of the income that makes up the local budget in Romania is extremely uneven, closely dependent on the level of economic development, the presence of strategic resources, or proximity to the western border which enhances the opportunities of investment coming from Western Europe. This uneven distribution is illustrated by the share of own revenues in the formation of local budgets, with variations ranging from 3.3 to 92.8%, both extremes being located in the south of the country (Figure 1).

The main axis of the country’s development is highlighted, linking Constanta Harbor on the Black Sea coast with the capital region and farther on with southern Transylvania and the farther west of the country. On a very isolated scale, small cores that manage to accumulate enough revenue of their own to cover the local budget are emerging around metropolitan areas or in a few touristic mountain areas. At the opposite pole, vast areas, particularly in the northeast and southwest of the country, but also in other remote areas throughout the country, are characterized by a very low capacity to ensure budget revenues, being heavily dependent on the centralized budget.

4.1.2. Ratio Between Staff Expenditure and Own Income

The average value of this ratio is quite high (0.85), demonstrating that the majority of the local administrative units spend their revenues on this category of expenditure. The lowest values are present in the peri-urban area of the capital. However, the metropolitan areas around major cities in Transylvania or in the southeast part of the country are also well defined, where the touristic and harbor features create opportunities for accumulating higher incomes (Figure 2). The analysis illustrates a real two-speed Romania while the gap thus created has every chance of being maintained and even widened.

The aforementioned axis is clearly marked, being in major opposition to the vast areas in the northeast and southwest dominated by very high values of this ratio, most often supraunitary. This proves that the own revenues are not sufficient to ensure even salaries for the employees, which brings up again the need to merge some administrative units. Hence, the discussion on the administrative–territorial reform, which has been dragging on for several decades, is back in the spotlight. Keeping at all costs, just for political reasons, aged local administrations inherited from the communist period (the administrative-territorial reform of 1968) in remote areas, not to mention that they are incapable of self-sustainability, is an error in which all the governments after 1990 have persevered. Practically subsidizing poverty condemns these regions to perpetual underdevelopment, maintaining an extreme dependence on the central budget.

4.2. The Typology of the Rural Areas According to Local Budget Components

4.2.1. Typology of the Revenue Structure of Local Budgets in Rural Areas (2019–2023)

The XLStat classification of the main categories of income (own income, income from government subsidies, income from European funds, other income) revealed six distinct types, forming homogeneous categories (the dispersion of values within categories is 0.27, compared to 0.73 between categories). Their profile is differentiated by the ratio of the four income categories. The relatively patchy distribution of the six categories leaves enough room for the formation of homogeneous, fairly large areas, completely overlapping some counties (Figure 3). The relative spatial incoherence of some of the above-mentioned types can be explained by the uneven administrative capacity, especially in terms of attracting EU funds. The overall picture is one of heavy dependence on government subsidies, including funds necessary to balance budgets.

The first type is represented by the fewest (207) administrative units, but it is a good example of the capacity to mainly absorb European funds, which provides them with average incomes in relation to the population. Despite their peripheral position within counties, often at a distance from major urban centres, they manage to minimize their dependence on government subsidies. They are rather characteristic of the mountainous area of the Carpathians and in the Danube Delta area, which is classified as a biosphere reserve.

The second type is also small in numbers and scattered (210 units), having a certain spatial coherence in the Western Carpathians. It has average revenues, presenting a relatively low own revenue contribution but being strongly dependent on revenues provided by the funds for balancing budgets. In general, this type includes municipalities with a small population, with lower administrative costs, nevertheless being unable to provide from their resources even for these.

Type 3, which is more widely represented (498 units) comprises the administrative units having the lowest own revenues, with a very high ratio (almost half of the total income) provided by government subsidies. Present everywhere, but with a higher frequency in the southwest of the country, where they form vast areas in counties such as Mehedinti, Caras-Severin, or Hunedoara (former mining areas), these poor communities have similar characteristics to those of type 2. The administrative costs are very high, grouping here the municipalities mostly affected by depopulation, hence the very high level of total income per capita (5043 compared to an average of 3288). They are the most vulnerable rural administrative units in terms of financial stability and sustainability.

Type 4 appears as the most spatially coherent, covering almost completely the most developed counties (Ilfov, Constanta, Brasov, Sibiu, Arges, Cluj, Timis), where job offers are more abundant and dispersed throughout the territory, creating the prerequisites for providing the largest share of the local budget from own revenues. The ratio of government subsidies is minimal and European funds are often a supplement that creates a solid base for public finances. Characterizing larger municipalities (especially major urban surrounding areas), the total per capita income is close to the average (RON 3135) but sufficient to ensure high autonomy in the creation and use of public budgets.

Type 5 tends to be closer to a similar model, with a relatively high share of revenues (40% compared to an average of 34%) and a low share of government grants, but it is marked by a very high share of funds needed to balance the budget. It is the most common one (846 communes), and it forms vast, coherent areas, especially in the north and northeast of the country and it has the lowest per capita income (RON 2310). Their precarious situation is less difficult than the one seen in types 2 or 3, due to the contribution to their income. Providing support for accessing EU funds and developing the local labor market, which is largely dominated by agriculture, could balance the budget and reduce aid dependency.

Type 6 is fairly common (568 communes), with total revenues below the national average, mostly realized from government subsidies and budget-balancing funds. It is mostly found in the most remote areas in the east and south of the country, with a low share of own income and, as for type 3, they are a real challenge due to their heavy dependence on the central budget. Isolated and burdened by an aging population as well as massive emigration of the labor force and depopulation trends, these areas are vulnerable in terms of effective local governance. In some cases, opening up the use of European funds can be a proper solution in order to bring major changes by developing infrastructure, diversifying economic activities, and stimulating entrepreneurship.

4.2.2. The Typology of Local Budgets in Rural Areas (2019–2023), from the Perspective of Expenditure

The hierarchical ascendant analysis, using as variables expenditure on staff and personnel, goods and services, social care or European projects, capital expenditure, and other categories, identified six distinct types, according to their share. As in the case of the income typology, the dispersion of values within categories is much smaller than between categories. Their spatial distribution is more sparse while the budget structure is more dependent on specific needs (Figure 4). The expenditure structure of the first three categories can be considered to represent a more efficient administration, where the share of staff and personnel expenditure is low (below the national average of 27.7%).

The first type is characterized by expenditure on European projects (more than 20% of the total), resulting in lower administrative costs. The 469 municipalities in this category are relatively grouped in two distinct areas: the southeast of the country, especially in the north of the Dobrogea region, and the center of the country, with a higher frequency in counties of Bistrita-Nasaud, Mures, and Harghita. Type 2, which is relatively rare (only 270 administrative units) and widely spread across the territory, is characterized by the lowest share of staff and personnel expenditure and a very high share of capital expenditure (more than half of the total). Type 3, which is much more common (646 units), is similar in structure to the previous type. The last three types show a dysfunctional structure of expenditure budgets, with a high share of expenditure on staff and personnel, social care, or goods and services. Type 4 (548 units) represents the rarest variant of this structure, being found especially in the inner Carpathian regions. Type 5, however (508 units), is mainly seen in the outer Carpathian regions, usually located in more remote areas, with a high level of social care expenditure, well above the average. The highest frequency can be noticed in the southern counties (Valcea, Dambovita, Olt, and others). Type 6 (424 municipalities) is scattered all over the country and presents the highest administrative costs (staff and personnel expenditure exceeds 50% of the total). Coupled with above-average welfare costs and a very low share of capital expenditure, this type is clear proof of administrative inefficiency.

4.2.3. Combined Typology of Income and Expenditure Budgets on the Local Level in Romania (The Average of Years 2019–2023)

In order to diminish the patchwork distribution of the structure typology of the revenue and expenditure budget structure, the most representative categories were combined, which highlighted certain types, and a mixed classification was made. The considered categories are the following: total income per capita, the share of own income, the share of income from EU funds and government grants, the share of staff and personnel expenditure, social care, and EU projects. Using the same method of hierarchical ascendant classification in XLStat, four broad categories of administrative units were distinguished (Figure 5).

The four categories are clearly distinguished by the level of total per capita income, with the first two (A and B) well above average and the other two (C and D) well below average. Their profile is to some extent intertwined, with types A and C characterized by a high share of self-finance, relatively low subsidies, and thus lower social care and staff expenditure. On the other hand, types B and D have lower own incomes and much higher staff and social care expenditures, hence higher subsidy levels (especially in the case of type B) (

Table 2. The class profiles of the combined typology. Data source: EVC 2019–2023.

Class	Total Income	% Own Income	% of Subsidies	% of European Funds	Expenditures			Average Population (2021)	Nr. of Units
	Lei/Inhabitant				Staff	Social Assistance	European Projects
A	4344	42.7	20.2	5.7	24.3	7.5	8.9	2346	541
B	4597	23.2	35.7	4.8	30.2	9.9	6.0	2104	634
C	2418	43.7	13.0	3.7	25.6	8.0	7.4	4015	1105
D	2531	28.4	21.0	4.1	33.0	9.8	5.1	3565	582

).

Type A can be considered as representative of a higher level of self-financing, with a higher financial potential and with an expenditure budget structure which is more oriented towards public acquisition and investment, including access to European funds, at a much higher level than the other three types. From a geographical point of view, there are two wide areas which are predominant: one in the southeast, the lower Danube region, where agro-industrial and touristic activities provide an important basis for collecting own income, and the other one in the mid-western part, specifically the northwestern Transylvania and Banat regions, where there can be seen an openness to using European local development projects, a more favorable attitude to foreign investment trends, as well as an entrepreneurial spirit to create better conditions to ensure relative stability and financial self-sustainability. The municipalities that fit into this profile (541 in total) are generally small and the fact that they are largely self-financing is all the more remarkable.

Type B is problematic, not necessarily because revenues are insufficient, but rather because the revenue structure and especially the expenditure structure indicate a strong administrative inefficiency (634 cases). High per capita income is also due to the highest level of government subsidies (well over a third of the total). The costs of running these small or very small administrative units are often very high, as indicated by staff and personnel and social welfare expenditure. The access to European funds is minimal, and the areas included in this profile correspond, though not by chance, to the most underdeveloped regions in the country (a large part of the county of Vaslui, very common in the southwest of the country as well as in the western Carpathians, strongly affected by depopulation, where many municipalities have fewer than 1000 inhabitants) [41].

Type C is a rather interesting case, including those municipalities which, despite a precarious budget (low income per inhabitant), present a very high share of own revenues, the lowest level of government subsidies, and the lowest staff and personnel expenditure, hence being a model to be followed. It is very frequent, grouping about 40% of municipalities, closely related to the level of economic development, and more characteristic of the western part of the country as well as in the Carpathian and low Carpathian area, but less often found in the hilly or lowland areas in the south and east. The size and profile of municipalities that fall into this category are higher, which explains their high capacity to cover the budget by self-financing. The relative openness to European projects is also notable in their case.

Type D shows similarities to the previous group in terms of total income level and demographic size, but it distinguishes itself by a lower capacity to provide income, hence a relatively high dependence on government subsidies. The inefficiency of fund management is shown by high staff and personnel costs, so that one can legitimately wonder how municipalities of the above type can operate with a similar population but lower costs. The answer lies in lower welfare costs and better collection of own revenues. Mainly found in the peripheral areas in the north, northeast, and southwest, this type is at least as problematic as type B and it actually clusters with it in large areas, covering almost completely some counties such as Vaslui in the northeast and Teleorman, Mehedinti, and Olt in the southwest.

4.3. Factor Analysis of the Structure of Local Budgets in Rural Romania (2019–2023)

The reasons for a rather dispersed spatial distribution of the patterns of revenue organization and expenditure budgets on local levels can be varied, manifesting conjuncturally or as the combined effect of specific demographic, economic, social, or cultural development. The choice to use partial least square multivariate analysis was guided by the large number of explanatory variables (structural or drivers), retained to validate or eliminate potential influences, often considered a priori as being fundamental.

The analysis used total income per capita as the dependent variable (average for years 2019–2023), having an R² coefficient value of 0.608. Given the R², 61% of the variability of the dependent variable TI is explained by the 17 explanatory variables. Most of these are sufficiently correlated, both positively and negatively, with 11 of them carrying quite an important significance (

Table 3. Correlation matrix. For primary data sources, see Table 1.

Variables	OI	GS	EF	SE	SAE	PEF	CE	EHC	AG	PD	AGR	SI	ED	RR	DS	PCS	AMT	TI
OI	1	−0.61	−0.15	0.09	−0.16	−0.09	−0.31	0.17	−0.32	0.39	−0.44	0.55	0.41	0.07	0.30	0.35	0.33	−0.24
GS		1	−0.18	−0.44	−0.18	−0.19	0.77	−0.27	0.24	−0.26	0.24	−0.20	−0.19	−0.05	−0.27	−0.21	−0.20	0.49
EF			1	−0.27	−0.14	0.84	−0.32	0.22	−0.09	0.06	−0.03	0.02	0.05	0.08	0.07	0.04	0.07	0.14
SE				1	0.22	−0.30	−0.51	−0.04	0.10	−0.12	0.05	−0.17	−0.07	−0.06	−0.14	−0.13	−0.12	−0.42
SAE					1	−0.19	−0.21	−0.02	0.14	−0.12	0.15	−0.27	−0.15	0.10	0.05	−0.07	−0.05	−0.39
PEF						1	−0.40	0.20	−0.10	0.08	−0.06	0.05	0.06	0.07	0.08	0.06	0.10	0.12
CE							1	−0.22	0.13	−0.13	0.11	−0.04	−0.07	−0.08	−0.13	−0.06	−0.11	0.40
EHC								1	−0.32	0.29	−0.08	0.14	0.01	0.14	0.28	0.13	0.13	−0.21
AG									1	−0.81	0.31	−0.18	−0.12	−0.32	−0.51	−0.39	−0.30	0.36
PD										1	−0.38	0.27	0.24	0.29	0.57	0.55	0.39	−0.34
AGR											1	−0.36	−0.67	−0.08	−0.36	−0.45	−0.40	0.14
SI												1	0.42	−0.07	0.20	0.29	0.29	0.13
ED													1	−0.10	0.28	0.35	0.40	−0.04
RR														1	0.08	0.02	0.05	−0.10
DS															1	0.45	0.42	−0.45
PCS																1	0.46	−0.21
AMT																	1	−0.21
TI																		1

and

Table 4. Correlation matrix of the variables with the t components.

Variable	t1	t2
OI	−0.5918	0.4184
GS	0.7644	−0.0033
EF	0.027	0.3938
SE	−0.3903	−0.5572
SAE	−0.2721	−0.6272
PEF	0.079	0.4351
CE	0.6205	0.1015
EHC	−0.3775	0.1448
AG	0.6029	−0.2706
PD	−0.6489	0.3575
AGR	0.4294	−0.5323
SI	−0.1872	0.6856
ED	−0.2844	0.5577
RR	−0.2266	0.0320
DS	−0.6235	0.1932
PCS	−0.4883	0.4115
AMT	−0.4438	0.3976
TI	0.6860	0.3224

). Bartlett’s sphericity test (p-value > 0.001) and KMO measure of sampling adequacy (0.704) also attest to the validity of the model. Given the p-value and the significance level of 5%, the information brought by the explanatory variables is significantly better than what a basic mean would bring.

The analysis shows a strong positive correlation with the level of government subsidies (GS), capital expenditure (CE), and population aging (AG), indicating a strong dependence of most municipalities in budgeting. The variables showing a relative level of autonomy such as own income (OI) are negatively correlated, reinforcing the statement made above. The fact that staff and personnel and social care expenditure are also negatively correlated undermines the assumption that high revenues are generated by administrative or social expenditure. Moreover, the correlation to demographic size (DS) or population development (PD) is negative, which is only natural as generally municipalities with larger, growing population numbers are less burdened by such costs than other municipalities with declining population numbers. At the same time, the costs generated by health care or educational and cultural needs (EHC) are also negatively correlated as well as the proximity to the county seats (PCS) or the infrastructure quality (AMT). This is also because some of the possible explanations are invalid or proven incorrect. For example, the ratio of the Rroma population which, as a rule, implies a younger population (it is positively correlated to population growth and negatively to the level of aging), presenting higher social costs, is not relevant in terms of setting up local budgets. The level of education (ED) and to a lesser extent the access to European funds (PEF), the ratio of the population employed in agriculture (AGR), or the salary-earning population (SI) have low significance, although, indirectly, they surely exert an influence. For example, the high level of education is strongly correlated to the level of own income and the ratio of the salary-earning population, while the communes with high values like these are much more autonomous when it comes to establishing the budget. At the same time, the ratio of the population working in agriculture is positively correlated to the level of aging and negatively correlated to the indicators which assume a higher level of development (demographic size, proximity to important urban areas, or easy access to transport infrastructure). Thus, after having analyzed in detail the correlations between variables, even if they are apparently non-significant, we can observe an indirect incidence which enhances the explanatory value of all the well-correlated variables. Also, mutual influences can be detected among the mentioned variables, which might lead to interesting conclusions. For example, government subsidies are strongly linked to capital expenditure, thus reinforcing the idea of a significant reliance on the state budget to finance public works. Conversely, own revenues are negatively correlated to government subsidies, reinforcing the conclusion presented in the descriptive analysis, namely the existence of strong disparities that are relevant on a regional level, from the perspective of the self-financing capacity and administrative efficiency.

The correlation matrix of the variables with the t components also indicates a significant contribution of all the indicators introduced in the model. Fourteen of the seventeen variables have a determining role for the t1 component and twelve for t2. The positive correlation of GS, CE, and AG which emphasizes the massive dependence on subsidies from the state budget, directed preferentially towards capital expenditures, especially in aging communities, is remarkable. On the contrary, the strongly negative correlation with OI, PD, DS, or PCS confirms that this dependence characterizes isolated communities, which show depopulation tendencies and cannot cover their budget with their income. Component t2 groups have significant positive correlation values, primarily for SI, ED, OI, PEF, and PCS. These demonstrate the higher ability of communes well positioned in relation to the urban network, with high wage incomes, higher levels of education, and openness to European funds to supply the budget with their revenues. The strongly negative correlation with SE, SAE, and AGR confirms their ability to self-sufficiently meet their needs from their budget. The two components correspond broadly to the four classes identified by the combined typology, with t1 corresponding to classes B and D and t2 to classes A and C.

The correlations between the analyzed variables are better demonstrated in the figure that represents the factorial experimental plan, on the two axes F1 and F2, whose contributions are slightly disproportionate (Figure 6).

An explanation is their multicollinearity, as some of them can be represented in the form of synthetic indices. The dependent variable, total budget revenues, is placed in the vicinity of those variables which have shown a high explanatory value (CE, GS, AG) and in opposition to the others, especially grouped in the upper part of the F2 axis. The variables and indicators showing a higher level of development (AMT, PCS, or ED and SI) are redundant and appear to be strongly correlated to the population growth potential, the demographic size, and self-sustainability from own income. All these indicators, relatively close to those which show the ability to attract European funds, correspond to the population’s tendency to concentrate in metropolitan areas or in an axial position, along transport routes, where they can benefit from easier access to services or workplaces. The variables which are proof of a higher degree or rural characteristics (SE, SAE, AGR) are relatively grouped, confirming the spatial dichotomy between areas presenting population and activity concentration and the remote areas, described by aging and depopulation, where the only activity present is often agriculture (an activity of survival) and social care needs which are very high.

In conclusion, we have reasons to believe that the multivariate analysis has achieved its goal, highlighting the interactions that appear in the variety of factors involved in the setting and use of local budgets. Consequently, some evidence presented as a result of the typological analyses has been thus reinforced. As a whole, it is quite clear that most Romanian municipalities and rural communities are quite vulnerable from the perspective of their ability to self-ensure financial stability and sustainability. This confirms the hypothesis of a strong dependence of the structure of local budgets in rural municipalities on the level of development, position relative to urban centers, and socio-demographic characteristics.

5. Conclusions

This paper contributes to the literature on regional fiscal imbalance as well as the geographic implications of expenditure decentralization and local government efficiency for economic growth. It can serve as a reference point for the status of fiscal decentralization and local economic development, expenditure efficiency, and the outcome of government reforms and strategy based on rural administration efficiency. It draws attention to the development disparities that are becoming more and more evident in Romania.

It is increasingly clear from the analyses carried out that administrative reform is needed that is compatible with ensuring the sustainable development of rural communities to strike a balance between the potential for supporting the local budget through tax collection and the costs of administering the territory. The latter can be strongly influenced by the specific physical–geographical characteristics and, in particular, the size of the territory administered. The evidence of a strong divide between self-sustaining areas and those dependent on government subsidies is the main conclusion. The gap between rural communes located in the vicinity of large urban agglomerations or along the main development axis and isolated ones with an aging population, poorly diversified economic structures, and poor infrastructure constitutes a huge challenge for public policies aimed at reducing disparities. The opportunities opened up by access to European funds are not being fully exploited but rather are still being exploited by the municipalities that benefit from them. The typologies show the presence of well-defined regional profiles, with significant differences between southeastern and northwestern regions. What separates them is their dependence on aid from the central budget, which is much higher in the south and east of the country. By the same token, access to common funds is higher in the northwestern regions, offsetting a significant part of the costs of territorial administration.

The multivariate analysis highlighted the strong vulnerability of most municipalities in Romania in terms of their capacity for sustainable territorial management. The dependence on factors such as demographic aging, a process which is on the rise in the Romanian countryside, remains problematic. The induced social costs can only be covered by subsidies from the central budget. Diversifying economic activities by stimulating local entrepreneurship may be a solution to increase the capacity for financial self-sufficiency. This implies the implementation of long-term local development programs, aiming for stability on multiple levels (demographic, economic, etc.) and sustainability, including in terms of environmental relations.

We believe that this approach, through the results presented and the conclusions drawn, can support a more in-depth analysis of the impact of local development policies. The integration of the analyses in a multiscale approach (including the national and county levels) can signal thresholds of manifestation of the relevant factors for the constitution of local budgets’ revenues. In this way, it will be possible to determine more accurately where action needs to be taken to remedy the dysfunctions observed, in the spirit of genuine decentralization. This is much discussed, contradictorily, but little action is taken, preferring centralized control of the distribution of financial resources. This study may have potential limitations, particularly related to the diversity of the data; it is also a predominantly quantitative study, therefore we mention that the introduction of some qualitative methods (interviews with mayors and local government, for example) could enhance the validity.

The study can be supported to deepen the analysis in the direction of identifying connections with the administrative capacity of local authorities according to political affiliation, a topic hotly debated in the media. In the same sense, the discussion can also be extended to include specific features related to entrepreneurship, propensity to emigrate, quality of human capital, or level of housing.