| Summary: | Bibliography: pages 171-176. === This thesis is a theoretical enquiry into the financial policies of local governments in South Africa. The basic principles governing this issue are presented in Chapter Six. The theory of corporate debt capacity is drawn upon and an analogous model of local government debt capacity is presented. The Modiglian/Miller approach is adapted, and the conclusions of this model applied in the local government context. The implication is drawn that local government officials see the incurment of debt as increasing the financial riskiness of the local area, just as corporate executives see corporate debt as increasing the riskiness of the firm. It is hypothesised that local governments which are very loosely linked, politically and economically, to the people they serve will be more risk averse than fiscally or electorally sensitive governments, and will display greater reluctance to incur debt. In so doing, they will sacrifice opportunities to improve the area by favourable capital development, financed by a judicious combination of debt and current revenue. Current available data on a cross section of local governments is presented which tentatively confirms this hypothesis.
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