Assessment of Financial Sustainability of Local Budgets in the Budget Management System Using Kohonen Maps

Abstract

Systematic assessment of the financial stability of local budgets is important for timely detection of budget imbalances and identification of their causes, thus helping to make informed management decisions of current and strategic nature on the development of territories, quality local public services and improving welfare. The article proposes the use of Kohonen maps to determine the financial stability of local budgets. The main advantages of the practical use of Kohonen maps for this purpose compared to such common assessment methods as integrated and matrix are the simplification of the process of assessing the financial stability of local budgets and at the same time visualization of the results for public presentation. On Ukraine's example local budgets were grouped according to the parameters of their financial stability with the construction of Kohonen maps based on the SOM-Ward algorithm. It allowed determining the financial condition of local budgets of Ukraine during 2017-2020 and accordingly the type of their financial stability. Taking into account changes in the financial stability of local budgets over time is important when adjusting fiscal policy. The idea is that simplifying the process of assessing the financial stability of local budgets is an important condition for its active practical application and at the same time will allow visualizing information for the public about local budgets which will promote transparency in budget management and increase trust in the formation of priorities of fiscal policy at the local level.