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

41 Pages Posted: 30 Mar 2013

See all articles by Agnès Bénassy-Quéré

Agnès Bénassy-Quéré

Paris School of Economics (University Paris 1)

Guillaume Roussellet

McGill University - Desautels Faculty of Management

Date Written: March 1, 2013

Abstract

Nous proposons une premiere tentative pour prendre en compte les engagements hors-bilan de l'Etat lies a l'assurance implicite des banques systemiques dans une evaluation coherente de la soutenabilite budgetaire, pour 27 pays de l'Union europeenne. Nous calculons d'abord des ecarts de scalite (tax gaps) a la Blanchard (1990) et Blanchard et al. (1990). Nous introduisons alors deux mesures alternatives des engagements implicites hors-bilan lies au risque de crise bancaire systemique. La premiere mesure repose sur des donnees microeconomiques au niveau des banques. La seconde mesure s'appuie sur des estimations macro-economtriques de la probabilite et du risque de crise bancaire systemique, a partir de donnees historiques. En e et, elle suppose qu'en cas de crise, toutes les institutions nancieres systemiques devraient ^etre ren ouees par l'Etat. De son c^ote, la seconde approche tend minimiser le co^ut car il se fonde sur des donnees historiques impliquant des pays pour lesquels le secteur bancaire represente generalement une part limitee de l'economie. C'est pourquoi une combinaison des deux approches permet d'obtenir une fourchette des co^uts.

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 a 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 on microeconomic data at the bank level. The second one is based on econometric estimations of the probability and the cost of a systemic banking crisis. 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: H21, H23, J41

Suggested Citation

Benassy-Quere, Agnes and Roussellet, Guillaume, Fiscal Sustainability in the Presence of Systemic Banks: The Case of EU Countries (March 1, 2013). Banque de France Working Paper No. 428. Available at SSRN: https://ssrn.com/abstract=2241004 or http://dx.doi.org/10.2139/ssrn.2241004

Agnes Benassy-Quere (Contact Author)

Paris School of Economics (University Paris 1) ( email )

106-112 boulevard de l'Hopital
Paris, F-75013
France
+33 1 44 07 82 19 (Phone)

HOME PAGE: http://www.parisschoolofeconomics.com/benassy-quere-agnes/agnesb.html

Guillaume Roussellet

McGill University - Desautels Faculty of Management ( email )

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

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