Fiscal Sustainability in the Presence of Systemic Banks: the Case of EU countries

Agnès Bénassy-Quéré (1) , Guillaume Roussellet (2, 3, 4)

1 CES - Centre d'économie de la Sorbonne
2 ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique
3 Centre de recherche de la Banque de France
4 CEREMADE - CEntre de REcherches en MAthématiques de la DEcision

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 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.

Mots clés: fiscal sustainability; tax gap; systemic banking risk; off-balance sheet liabilities

Domaines: Economies et finances

Agnès Bénassy-Quéré, Guillaume Roussellet. Fiscal Sustainability in the Presence of Systemic Banks: the Case of EU countries. International Tax and Public Finance, 2014, 21 (3), pp.436-467. ⟨10.1007/s10797-013-9273-0⟩. ⟨hal-00825256⟩