Belgium: Selected Issues

March 31, 2020

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Belgium: Selected Issues, (USA: International Monetary Fund, 2020) accessed December 22, 2024

Summary

This Selected Issues paper analyzes Belgium’s fiscal stance using a structural stochastic model. This note uses a theoretical model that explicitly accounts for the trade-offs between the short-term cost of fiscal tightening and the long-term gains associated with higher fiscal buffers. This paper shows that once the current crisis is over, rebuilding fiscal buffers is essential to helping Belgium confront the next shock from a stronger fiscal position. Overall, this illustrates a major motivation for a credible medium-term fiscal consolidation strategy. When a government reduces debt, it increases its capacity to react to shocks later. This entails a short-term cost that is, in the case of Belgium, worth the effort as this capacity to smooth future shocks increases future welfare. In addition, a large capacity to react with fiscal policy reduces the risk of long-lasting effects of a large crisis. Historical data show that in the past, the Belgium government’s reaction to the cycle was limited to a single event. By contrast, if Belgium could firmly anchor public debt on a downward path, future governments would be able to offset downturns while keeping debt sustainability concerns under control.

Subject: Fiscal multipliers, Fiscal policy, Fiscal space, Fiscal stance, Output gap, Production, Public debt

Keywords: Business cycle, CR, Debt, Debt buffer, Debt change, Debt level, Debt objective, Fiscal policy stance, Fiscal space, Fiscal stance, Global, Government, Government behavior, Growth rate assumption, Interest rate, ISCR, Output gap

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Country Report No. 2020/092
Stock No:

1BELEA2020002
ISBN:

9781513538877
ISSN:

1934-7685

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