The study analyses the impact of water management on the long-term budgetary balance. The issue is becoming increasingly pressing as both decreasing natural resources and the impacts of climate change are becoming significantly risky issues in the area of long-term fiscal sustainability.

In case of making the use of natural resources, the main question is whether the management of economic instruments with state owned natural resources and stocks meets the criteria of preserved exploitation.

The study examines the operation and impact of water management on public finances along three lines of the sector:

1. water utility functions; water and wastewater services,
2. flood prevention,
3. water resources management (groundwater and surface water as well).

Our work quantifies the impact of water utility investments on the country’s macroeconomic processes and especially on the budget by using the HÉFA-CGE model. According to the main results, without investments, the already underestimated value of the sector’s capital stock could be reduced to less than a half by 2035 which means that the total number of expected breakdowns and water quality problems could drastically increase. This requires costly adaptation by consumers furthermore it would negatively effect on the productivity of taxpayer sectors.

The study was presented by Gábor Balás, CEO of HÉTFA at the conference co-organised by the Fiscal Council of Hungary and The Hungarian Economic Association. The presentation is available here (in Hungarian).

The CGE macromodels are based on macroeconomic principles that is the economic processes in the model are deducted from the individual decisions of the actors. The data describing the income flows among the economic actors serve as the basis of the model. With this data, it can be shown how the sudden and significant change (shock) in one sector of the economy influences the other sectors.

In the HETFA Working Paper using this model, Klára Major and Luca Drucker analysed the macroeconomic impact of the electricity outages. According to their results, the 2% setback of the energy supply leads to a 0,54% decrease in the GDP. This decrease is explained by the fact that the production and the consommation of most of the services and products require energy. The amount of this decrease depends significantly on the fact that the different actors reduce their comsommation and production on a different scale.

Major, Klára & Drucker, Luca Flóra: Macroeconomic impact of electric power outage – simulation results from a CGE modelling experiment for Hungary, 2015, HETFA Working Paper Series No. 12.