Economic determinants of local budget credibility in Slovenia and CroatiaPrijaković, Simona (Avtor) Jagrič, Vita (Avtor) Markovič-Hribernik, Tanja (Avtor) budget credibilityCroatiaeconomic determinantslocal governmentsSloveniasystem GMMPurpose: This article examines the budget credibility of local governments (LGs) in two neighbouring EU countries, Slovenia and Croatia. It analyses eight economic determinants of budget deviations (BDs), defined as the difference between planned and actual budget revenues and expenditures, expressed as a proportion of planned amounts. In doing so, the study addresses an important gap in the literature by providing the first systematic empirical assessment of the economic factors shaping local budget credibility in Central and Eastern Europe, with implications for both fiscal policy and local public finance. Methodology: The analysis is based on a dynamic panel data model estimated using the system GMM approach and covers all 768 LGs in Slovenia and Croatia over the period 2016–2023. The sample comprises 128 cities and 428 municipalities in Croatia, and 12 cities and 200 municipalities in Slovenia. The empirical framework also incorporates local electoral cycles, including one election prior to and two elections during the observation period in both countries, in order to capture more fully the interaction between political and economic influences on local budgeting practices. Findings: The findings indicate that Croatian LGs display significantly greater BDs than Slovenian LGs. They also show that current BDs are strongly shaped by their lagged values, pointing to a high degree of persistence in budget credibility outcomes. In Croatia, larger population size is associated with lower BDs in total revenues and capital expenditures. In Slovenia, lower BDs are linked to lower unemployment, higher ownsource revenues, and greater reliance on government or EU grants. Overall, the results point to meaningful cross-country differences in the way socio-economic and fiscal factors affect local budget credibility, highlighting the need for context-sensitive approaches to fiscal management. Originality: This study makes an original contribution to the literature by combining comprehensive coverage of local governments with advanced econometric analysis to identify the economic determinants of local budget credibility. It also provides a basis for the development of harmonised tools for assessing budget credibility, with practical relevance for improving fiscal transparency, accountability, and sustainable local governance across EU countries. The findings may assist policymakers and fiscal managers in strengthening budget planning and execution, thereby contributing to more effective public service delivery and greater financial stability. 20262026-07-01 08:21:30Članek v reviji184152sl