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General accounting in Belgium: Fiscal sustainability at a glance

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  • Andre Decoster
  • Xavier Flawinne
  • Pieter Vanleenhove

Abstract

This paper uses generational accounts as an instrument to analyse the fiscal long term sustainability of Belgian public finances. Age-profiles of detailed tax and expenditure categories are derived from micro data and microsimulation models, and then plugged into a long run demographic projection. We assess fiscal sustainability under current fiscal and budgetary policy for the base year 2010, and perform simulations of counterfactuals to determine the most important factors of the long run unsustainability. The generational accounting exercise shows that the budgetary situation in Belgium is untenable in the long run. However, contrary to what is often put forward in public debates, the current level of explicit debt plays only a minor role in explaining this sustainability problem. The ageing of the population and the related increase in age related expenditures are the main drivers of the long run fiscal imbalance and the high implicit debt. We analyse the generational effects of different tax instruments and expenditure reductions to return to sustainability and further disentangle the generational accounts for the three regions separately. Although the fiscal imbalance is biggest in Wallonia due to lower participation rates and higher unemployment, the projected demographic evolution, and more specifically the ageing of the population, has higher budgetary repercussions in Flanders.

Suggested Citation

  • Andre Decoster & Xavier Flawinne & Pieter Vanleenhove, 2012. "General accounting in Belgium: Fiscal sustainability at a glance," CREPP Working Papers 1203, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
  • Handle: RePEc:rpp:wpaper:1203
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    File URL: http://www2.ulg.ac.be/crepp/papers/crepp-wp201203.pdf
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    1. André Decoster & Jason Loughrey & Cathal O'Donoghue & Dirk Verwerft, 2010. "How regressive are indirect taxes? A microsimulation analysis for five European countries," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(2), pages 326-350.
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    Cited by:

    1. Damla Haciibrahimoglu & Pinar Derin-Gure, 2013. "Generational Accounting in Turkey," ERC Working Papers 1301, ERC - Economic Research Center, Middle East Technical University, revised Jan 2013.

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