Budgetary Sustainability in the Presence of Macroeconomic and Financial Market Instability: An Application to the Case of Belgium

21 Pages Posted: 19 Mar 2013

See all articles by Bas Van Aarle

Bas Van Aarle

Leuven Centre for Irish Studies LCIS; CESifo (Center for Economic Studies and Ifo Institute); Radboud University Nijmegen - Department of Economics

Jozef Konings

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: Spring 2013

Abstract

This paper develops a stylized budgeting framework to analyze the effects of macroeconomic shocks and government bond market conditions on public finances. We focus on the impacts of primary fiscal balance shocks, growth, and interest rate shocks on budgetary sustainability. We consider the effects of financial sector bailouts, uncertainty about aging costs and instability viz. speculation in government bond markets. The framework is applied to the case of Belgium, where recently these issues have played an important role. A scenario analysis of budgetary adjustment under alternative hypotheses is carried out to analyze Belgian fiscal sustainability over the next 20 years.

Suggested Citation

van Aarle, Bas and Konings, Jozef, Budgetary Sustainability in the Presence of Macroeconomic and Financial Market Instability: An Application to the Case of Belgium (Spring 2013). Public Budgeting & Finance, Vol. 33, Issue 1, pp. 114-134, 2013, Available at SSRN: https://ssrn.com/abstract=2235483 or http://dx.doi.org/10.1111/j.1540-5850.2013.12005.x

Bas Van Aarle (Contact Author)

Leuven Centre for Irish Studies LCIS ( email )

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Jozef Konings

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie ( email )

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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