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Can Belgium Borrow Itself out of the Budget Deficit?

Published online by Cambridge University Press:  17 August 2016

Michele Fratianni
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Extract

The deficit of the general government averaged 1.5 percent of Gross Domestic Product (GDP) in the 1960s, 5.0 percent in the 1970’s, and 11.9 percent in the 1981-84 period. This growth occurred depite a sharp rise in the average tax burden, as tax revenues went from 31.7 percent of GDP in the 1960s to 41.3 percent in the 1970s and 46.3 percent in the 1981-84 period. The engine of the budget deficit has been and continues to be the rise in expenditures.

This note raises two questions. First, is the existing structure of expenditures, taxation, growth of output, and real interest rate consistent with a stable (that is, finite) ratio of government debt to GDP. The answer is no. The second question asks what economic conditions will have to emerge to stabilize the bond-to-income ratio of the nation. There is no unique answer to this question; nonetheless, I offer one solution whose «realism» may be beyond the scope of what political economy can yield at the moment.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 53 , Issue 1 , March 1987 , pp. 89 - 96
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1987 

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Footnotes

(*)

Indiana University and Visiting Professor at the Catholic University of Louvain. I want to thank Guy Verfaille for revealing some of the more mysterious parts of the Belgian data; and Paul De Grauwe, Theo Peeters and Anton Banen for discussions on this topic.

References

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