The local allocation of EU funds in Slovakia: determinants of success in project submissions in 2014-2020 26th International Colloquium on Regional Sciences June 14-16, 2023, Bořetice This work was supported by the VEGA 1/0837/21. Eva Výrostová - Tomáš Výrost* Pavol Jozef Šafárik University in Košice *University of Economics in Bratislava I 26th Int. Colloq. on Regional Sciences Motivation and objective • ESIF funds are significant for municipal investments o After fiscal decentralization, the share of personal income tax is the most important revenue source for municipalities O LOCal taxes represent Only arOUnd 11% Of tOtal income (Papcunova, Hudakova andBeresecka, 2018) o 48% of approved projects in the 2014-2020 program period as of March 2023 • Lower absorption, late start of implementation • Differences among municipalities o E.g., large cities typically have experienced staff, small municipalities depend on eXte r n a I CO n S UIta ntS (Sumpikovd, Pavel a Klazar, 2004) What are the determinants of the success rate of submitted projects for European Structural and Investment Funds (ESIF) funding for municipalities in Slovakia in the 2014-2020 programming period? 26th Int. Colloq. on Regional Sciences Stylized facts on CP funding in Slovakia: absorption % 100 90 80 70 60 50 40 30 20 1U 0 2007 (2014) 2008 (2015) 2009 (2016) 2010 (2017) 2011 (2018) 2012 (2019) 2013 (2020) 2014 (2021) 2015 (2022) 2016 (05/23) 2017 2018 2019 ERDF, ESF, CF 2007-2013 2.15 5.46 9.99 18.89 27.8 41.05 52.68 60.11 84.36 93.99 93.99 94.01 95.07 ESI funds, YEI, FEAD 2014-2020 0.83 2.59 8.28 14.05 24.32 33.70 46.65 55.86 70.13 73.59 ■ERDF, ESF, CF 2007-2013 ■ESI funds, YEI, FEAD 2014-2020 Cumulative EU payments as a share of total allocation in 2007-2013 and 2014-2020 in Slovakia Source: Data from EC (June 2023) Eva Vyrostova Local allocation of EU funds in Slovakia 26th Int. Colloq. on Regional Sciences EU funds at the local level - literature review • Prior studies in member countries O Poland (Banaszewska and Bischoff, 2017), Portugal (Migueis, 2013), Hungary (Murakózy and Telegdy, 2016), Slovakia (Smékalová, 2018), Romania (Marin etai, 2023) o Findings: Support not always aligns with social and economic development Economic criteria not the sole determinants of the allocation; the political situation and relations between various layers of governance are significant (Bouvet and Dall'erba, 2010) Electoral incentives and funding objectives vs ESIF grant allocation in Germany's lOCal diStriCtS (Dellmuth andStoffel, 2012) Political motivations and normative objectives (Veiga, 2012; Murakozy and Telegdy, 2016; Migueis, 2013) o Municipal grants increase during local election years o Grants favor municipalities with closely contested legislative elections and where the ruling party is supported. Eva Výrostová Local allocation of EU funds in Slovakia 26th Int. Colloq. on Regional Sciences Dataset • Programing period: 2014-2020, Slovakia only • Data from January 2014 to March 2023 • Official national database on proposals and management (ITMS2014+) • Other data from the Statistical office of Slovakia and INEKO (NGO). • 2 357 municipalities or city boroughs out of 2 929 eligible submitted a proposal o Bratislava and Košice are separate legal entities established by a special law o Bratislava and Košice, are the only cities divided into city boroughs o Applications submitted by both the individual city boroughs and the cities themselves analyzed • Main dependent variable: project proposal success rate o ratio of the number of project proposals approved for financing to the number of submitted proposals Eva Výrostová Local allocation of EU funds in Slovakia Explanatory variables • Number of submitted projects, number of inhabitants o proxy for the municipalities' ability to submit quality projects, see Sumpfkova, et al. (2004) • Unemployment rate, Share of inhabitants (15-64) • Financial indicators o Total debt per inhabitant o Investment intensity o Current liquidity o Profit/loss after tax per inhabitant, o Surplus/deficit per inhabitant, o Net assets per inhabitant • Political party alignment with the ruling government coalition in 2014-2020 • Mayor gender (proxy by surname) Eva Vyrostova Local allocation of EU funds in Slovakia Methodology • Descriptive characteristics and financial indicators on individual municipalities have been averaged for three preceding years, i.e., years 2011-2013 • Overall performance of each municipality - the success ratio • Fractional logistic regression o Uses logistic link function to model ratios, accounts for boundary cases. o With a limited dependent variable constrained to the unit interval, OLS estimation should not be used o Beta regression of Ferrari and Cribari-Neto (2004) is a highly versatile, but only suitable for data strictly within the unit interval (no 0 and 100% success rates) Eva Vyrostova Local allocation of EU funds in Slovakia Summary statistics (1) (2) (3) (4) (5) N mean sd min max Success rate Number of submitted projects Size (number of inhabitants) Share of inhabitants (15-64 years) Debt per inhabitant Investment intensity Current liquidity Profit/loss per inhabitant Surplus/deficit per inhabitant Net assets per inhabitant 2014-2020 ruling parties affiliation Female representative Unemployment rate 2 357 0.69 0.31 0.00 1.00 2 357 4.97 5.94 1.00 65.00 2 357 2 466.31 11 727.65 12.67 414 130.67 2 357 0.70 0.04 0.42 0.84 2 356 73.06 94.70 0.00 828.94 2 357 0.05 0.22 -0.93 2.30 2 338 19.09 182.32 0.01 6 857.85 2 357 20.52 89.09 -343.29 1 349.01 2 357 15.60 83.88 -1 004.07 533.04 2 357 1 857.83 1 851.13 0.00 45 285.83 2 357 0.32 0.43 0.00 1.00 2 357 0.21 0.39 0.00 1.00 2 354 0.14 0.09 0.02 0.68 Note: N - number of municipalities or city boroughs that have applied for ESIF funds until the end of March 2023 and that have already been evaluated (approved or not-approved) without European Territorial Cooperation and technical assistance projects Source: data from SÜ SR, INEKO (2023), ITMS2014+ 26th Int. Colloq. on Regional Sciences Eva Vyrostovä Local allocation of EU funds in Slovakia Project applications and the success rates for municipal project financing requests Operation programme (OP) Number of Number of Success The ratio of submitted approved project rate approved to project proposals proposals requested funds OP Quality of Environment 3 667 2 012 55 % 55 % OP Human resources 2 843 2 053 72 % 60% Integrated regional operational 2 670 1 827 68 % 68% programme Rural development programme 1 658 1 132 68% 67% OP Integrated infrastructure 912 793 87% 97% OP Effective Public 20 15 75 % 75 % administration Additional contributions 2014- 7 7 100 % 100 % 2020 Total 11 777 7 839 67% 63 % Eva Vyrostova Local allocation of EU funds in Slovakia 26th Int. Colloq. on Regional Sciences Number of inhabitants of municipalities vs. number of submitted project proposals 10 100 1000 10000 Number of inhabitants 100000 Source: own processing, data from SU SR, ITMS2014+, as of end of March 2023. 26th Int. Colloq. on Regional Sciences Eva Vyrostova Local allocation of EU funds in Slovakia Spatial distribution of the success and unemployment rates, submitted projects and awarded funds c) Number of submitted projects ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^J d) Awarded funds [million €] (1) Baseline model Project writing experience_ Number of submitted projects (2) Extended model (3) Baseline model before 2020 election (4) Baseline model after 2020 election -0.0137* -0.0147* 0.0188 -0.0571*** Demographics Size (number of inhabitants) 5.55e-06 5.96e-06 1.23e-05 7.68e-06 Unemployment rate -1.823*** -1.671*** -0.522 -1.789*** Share of inhabitants (15-64 years) -1.630 -1.584 -0.409 -2.649** Financials_ Debt per inhabitant Investment intensity Current liquidity Profit/loss per inhabitant Surplus/deficit per inhabitant Net assets per inhabitant -0.000664* -0.000819* 0.166 1.82e-05 -0.000121 0.000293 3.69e-05 -0.00127** -0.000512 Other characteristics 2014-2020 ruling parties -0.179* -0.183* -0.160 -0.228** Female representative 0.129 0.137 0.0240 0.240** Constant 2.325*** 2.209** 0.791 2.582*** Observations 2,353 2,334 1,766 2,209 Note: Robust p-values in parentheses. Significance codes: *** p<0.001, **p<0.01, *p<0.05. Eva Vyrostova Local allocation of EU funds in Slovakia 26th Int. Colloq. on Regional Sciences Results • Number of submitted projects (-) o Increase in submissions lowers the overall success rate o Main effect after 2020, that is, towards the end of the programming period o Slow in implementations of ESIF funds, a rush to spend the funds towards the end, with lower quality? • Unemployment rate (-) o Cohesion policy objectives? • Debt per inhabitant (-) o Less financially sound municipalities may have difficulties raising additional capital for ESIF funds • Political party alignment (-) o On municipality level, the politics is different from parliamentary level o Mayoral candidates supported by several parties, including opponents on the parliamentary level o in 2018 municipal elections, many elected have not been affiliated with any political party • Female representatives (+) o Particularly after 2020 election 26th Int. Colloq. on Regional Sciences Eva Výrostová Local allocation of EU funds in Slovakia Concluding thoughts We provide an ex-post overview of the municipalities' success in securing EU funding in the 2014-2020 programming period. Further analysis needed to answer the question of targeting EU funds for EU cohesion policy goals. Significant negative effect of the productive age population after 2020 might relate to EU fund allocations in economically less active areas. Challenges faced by municipalities with high debt per inhabitant. Open questions to effective leadership and management styles. Municipal politics in Slovakia are complex, and the model doesn't explore political affiliation's impact in depth. Eva Vyrostova Local allocation of EU funds in Slovakia 26th Int. Colloq. on Regional Sciences The local allocation of EU funds in Slovakia: determinants of success in project submissions in 2014-2020 26th International Colloquium on Regional Sciences June 14-16, 2023, Bořetice This work was supported by the VEGA 1/0837/21. Eva Výrostová - Tomáš Výrost* Pavol Jozef Šafárik University in Košice *University of Economics in Bratislava Eva Výrostová Local allocation of EU funds in Slovakia