The Impact of Administrative Intensity on Financial Sustainability in Local Government: An Empirical Analysis of New South Wales

While a voluminous empirical literature has examined both municipal efficiency and financial sustainability in local government, to date no effort has been directed at investigating the relationship between administrative intensity and financial sustainability in local government, notwithstanding its public policy significance. The present paper thus seeks to address this gap in the empirical literature by examining the putative association between administrative intensity and financial sustainability in the New South Wales (NSW) local government system over the period 2015/16 to 2018/19. In addition, we examine whether variations in this relationship exist between regional and urban NSW local authorities. We find that administrative intensity has detrimental effects on financial sustainability in aggregate since it adversely affects the fiscal balance of local councils, while at the same time increasing the financial risk of local authorities. In terms of any variation between regional and urban councils, we find that administrative intensity has a differential impact on the two council categories in various ways.