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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.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2012/12077.pdf
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Bibliographic Info

Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 12077.

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Length: 35 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:mse:cesdoc:12077

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Postal: 106-112 boulevard de l'Hôpital 75 647 PARIS CEDEX 13
Web page: http://centredeconomiesorbonne.univ-paris1.fr/
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Related research

Keywords: Fiscal sustainability; tax gap; systemic banking risk; off-balance sheet liabilities.;

Other versions of this item:

Find related papers by JEL classification:

• H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
• H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
• J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

This paper has been announced in the following NEP Reports:

• NEP-ACC-2012-12-06 (Accounting & Auditing)
• NEP-ALL-2012-12-06 (All new papers)
• NEP-BAN-2012-12-06 (Banking)
• NEP-CBA-2012-12-06 (Central Banking)
• NEP-EEC-2012-12-06 (European Economics)
• NEP-PBE-2012-12-06 (Public Economics)
• NEP-RMG-2012-12-06 (Risk Management)

References

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1. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September.
   
   • James D. Hamilton & Marjorie A. Flavin, 1985. "On the Limitations of Government Borrowing: A Framework for Empirical Testing," NBER Working Papers 1632, National Bureau of Economic Research, Inc.
2. repec:imf:imfocp:224 is not listed on IDEAS
3. Caprio, Gerard Jr. & D'Apice, Vincenzo & Ferri, Giovanni & Puopolo, Giovanni Walter, 2010. "Macro Financial Determinants of the Great Financial Crisis: Implications for Financial Regulation," MPRA Paper 26088, University Library of Munich, Germany.
4. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "From Financial Crash to Debt Crisis," NBER Working Papers 15795, National Bureau of Economic Research, Inc.
   
   • Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
5. Daniel C. Hardy & Ceyla Pazarbasioglu, 1999. "Determinants and Leading Indicators of Banking Crises: Further Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1.
6. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June.

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