Journal of Urban Economics and Management

In order for the municipality to finance its current and developmental needs, it would resort to the internal (operational income, public budget, savings, etc.) as well as the external resources. Internal financial resources of the municipality are not usually sufficient to enable the municipality to run urban projects which are vital for the city therefore, the municipality is forced to finance the projects via transacting with the financial system external to its routine resources. Municipalities, in order to finance its projects and plans, obtain the required credit from financial institutes which are active in financial markets, e.g. banks, to ease their financial issues. The cash thus obtained is used for current operations and development, so an income is gained or a service is provided in the city. The current research aims at investigating into the interaction between municipality and the financial system so that the role of external financing and the efficiency whereof could be probed. Due to the limitations to collect the required data, comparisons were made between Tehran municipality and those in other countries for a period of 5 years (2007-2011). The results show that Tehran municipality, comparing with its counterparts, has significantly lesser used external financing in its projects and that there are necessities and preconditions for utilizing external financing for urban projects in areas such as transportation and urban services. External financing for urban projects has long-term benefit for the municipality of Tehran.