Fiscal Sustainability in the Presence of Systemic Banks: The Case of EU Countries

35 Pages Posted: 1 Nov 2012

See all articles by Agnès Bénassy-Quéré

Agnès Bénassy-Quéré

affiliation not provided to SSRN

Guillaume Roussellet

McGill University - Desautels Faculty of Management

Date Written: October 30, 2012

Abstract

We provide a first attempt to include off-balance sheet, implicit insurance to SIFIs into a consistent assessment of fiscal sustainability, for 27 countries of the European Union. We first calculate tax gaps à la Blanchard (1990) and Blanchard et al. (1990). We then introduce two alternative measures of implicit off-balance sheet liabilities related to the risk of a systemic bank crisis. The first one relies of microeconomic data at the bank level. The second one relies on econometric estimations of the probability and the cost of a systemic banking crisis, based on historical data. The former approach provides an upper evaluation of the fiscal cost of systemic banking crises, whereas the latter one provides a lower one. Hence we believe that the combined use of these two methodologies helps to gauge the range of fiscal risk.

Keywords: fiscal sustainability, tax gap, systemic banking risk, off-balance sheet liabilities

JEL Classification: H120, H630, H810

Suggested Citation

Bénassy-Quéré, Agnès and Roussellet, Guillaume, Fiscal Sustainability in the Presence of Systemic Banks: The Case of EU Countries (October 30, 2012). CESifo Working Paper Series No. 3975, Available at SSRN: https://ssrn.com/abstract=2168679

Agnès Bénassy-Quéré (Contact Author)

affiliation not provided to SSRN

No Address Available

Guillaume Roussellet

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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