Financial Diversity and the Development Process: Case study of Rural Communes of Eastern Poland in 2009-2018

In the modern state, the role and importance of communes is growing. They can carry out their tasks when equipped with stable and efficient sources of income. Financial resources are the basis for the operation and implementation of current and development tasks. Their analysis makes it possible to assess the budget structure and provides information on the state of the local economy or endogenous growth potentials. The aim of the article is to assess the diversity of the financial situation of rural communes using a synthetic measure. In addition, using the econometric models, the impact of socio-economic factors on the diversity of the measure of synthetic financial situation was examined. In order to build synthetic measures, the Technique for Order Preference by Similarity to an Ideal Solution method and based on distance in real space with Euclidean metrics were used. The aggregated value of the synthetic variable facilitates the comparison of objects in multidimensional spaces, but also makes it possible to order them due to the examined phenomenon. Empirical data were collected in spatial terms of 484 rural communes in the Eastern Poland region. In the case of municipalities, the choice of variables was largely determined by the availability of secondary data collected in a municipal system at the Local Data Bank of the Central Statistical Office for 2009-2018. The analysis showed that the rural communes of eastern Poland are characterized by significant disproportions in terms of financial standing. Rural communes with the best financial condition were characterized by a higher share of own revenues in total revenues, a higher level of income from local taxes and obtained from the share in the tax on natural and legal persons. It seems that the main reason for the relatively small impact of financial conditions on economic and social development is their strong dependence on transfer revenues transferred from the state budget and the amount of current expenditure. The above circumstances stiffen and stabilize the financial economy, making it relatively less susceptible to the influence of other factors. The obtained results may constitute for the local authorities an important source of information on the disproportions occurring between units on setting out potential directions for optimizing the structure of local finances.