Local politicians’ perceptions of financial conditions–do they align with financial indicators?

Abstract

Throughout history, critics of democracy have doubted people’s ability to govern themselves. For example, are local politicians–who often lack any formal training in accounting or economics–really able to comprehend complex financial information? Previous studies addressing this issue are in short supply, and their results are generally pessimistic. The aim of this paper is to test which–if any–financial indicators are related to local politicians’ perceptions of financial conditions in the setting of Swedish municipalities, thus extending earlier studies to a European context. Our analysis shows strong and significant correlations between most of the financial indicators tested and politicians’ perception of their municipality’s financial condition, including financial indicators capturing the levels of net income, equity ratio and tax rates. These findings provide optimism and strengthen arguments for the defenders of democratic government.