The Volatility of the Flemish Medium-term Budgetary Framework

Abstract

The purpose of this paper is to determine the impact of shifts in macroeconomic forecasts on the regional budget. In particular, this paper uses a probabilistic model for the Flemish budget to determine the probability distribution of future public revenues and expenditures. Its main findings are that the overall volatility of the Flemish budget has decreased as a result of the 6th State Reform. Specifically, the range of required cyclical corrections has narrowed after the reform. With the decentralization of a part of the personal income taxes, nonetheless, came a higher volatility in regional tax revenues. Before the reform this volatility was part of the volatility of the regional grants via a personal income tax grant for the regions. The increase in regional tax revenue volatility, however, is compensated by a decrease in grant volatility, thereby limiting the overall volatility of the Flemish budget.

Publication
In Reflets et Perspectives de la Vie Économique
Date