Fiscal Sustainability in the Presence of Systemic Banks : the Case of EU Countries
AbstractWe 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.
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Date of creation: Nov 2012
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Fiscal sustainability; tax gap; systemic banking risk; off-balance sheet liabilities;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-10 (All new papers)
- NEP-BAN-2012-12-10 (Banking)
- NEP-CBA-2012-12-10 (Central Banking)
- NEP-RMG-2012-12-10 (Risk Management)
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- Mikhail Stolbov, 2014. "How Are Interbank and Sovereign Debt Markets Linked? Evidence from 14 OECD Countries, the Euro Area and Russia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(3), pages 331-348, June.
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