01 Jun 2017

Could the decrease in Belgian government debt-servicing costs offset increased age-related expenditure?

Mikkel Barslund / Lars Ludolph

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This paper argues that none of the secular trends that have driven down real interest rates over the past two decades is likely to reverse in the near future. Thus, real rates can be expected to remain low and government debt-servicing costs to decrease further over the coming years. Based on these findings, the authors calculate direct gains accruing to the Belgian government from lower net debt interest payments. The savings on interest payments are then contrasted with the projected future increases in age-related expenditures on pensions, education and long-term care. The findings indicate that, if savings on interest payments are channelled to cover the increases in age-related expenditures, they will fully offset financing needs in these areas until 2030. The calculations are robust to a moderate increase in interest rates.

Mikkel Barslund is Research Fellow and Lars Ludolph is Researcher in the Economic Policy unit at CEPS. The research for this paper was funded by the Belgian Federal Science Policy Office (BELSPO) in the context of the Bel-Ageing Project.