How much can European governments squeeze out of their taxpayers?

Jean-Michel Courtault (courtault.jean-michel@univ-paris13.fr) and Riccardo Magnani

Economics Bulletin, 2014, vol. 34, issue 3, 1945-1960

Abstract: In this paper we use the concept of distributable surplus, introduced by Allais (1943) and Luenberger (1992), to evaluate the capacity of European countries to repay their debts. We first show that the surplus generated between 2005 and 2009 was not sufficient to cover the 2009 deficit for Greece, Ireland, Spain and the UK. In order to generate a surplus equal to the 2009 deficit, these countries would have had to reduce their initial well-being. Assuming that no reduction of well-being is acceptable by the community, we use Computable General Equilibrium (CGE) models to simulate different policies that can be implemented in order to generate sufficient surplus. We show that the results are very sensitive as to whether we consider deficits before and after the recent financial and economic crises. Then, assuming that governments are able to capture all the distributable surpluses, we compute the date at which they are able to repay their debts. We find that most EU countries, excepted Germany and to lesser extent France and the UK, cannot achieve debt sustainability. We finally discuss the usefulness of Eurobonds.

Keywords: Distributable surplus; public deficit; sovereign debt; debt sustainability; CGE models (search for similar items in EconPapers)
JEL-codes: D6 H6 (search for similar items in EconPapers)
Date: 2014-08-27
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Related works:
Working Paper: How much can European governments squeeze out of their taxpayers? (2014)
Working Paper: How much can European governments squeeze out of their taxpayers? (2012)
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