Economic impact of professional services reform in Belgium - A DSGE simulation [ Working Paper 09-18 - 30/06/2018]

This working paper reports the results of a macroeconomic impact assessment of the reforms in three regulated professional services in Belgium, namely legal, accounting and architectural services. Beyond their direct contribution to the economy, these services are economically relevant because they are closely linked to the other industries not only as user of inputs but mainly as providers of inputs for the rest of the economy. The reforms correspond to a decrease in the Non-Manufacturing Regulation (NMR) index of the OECD based on experts’ judgement for the accounting and architect ‘s services and on a corresponding change in the legal services index. Two scenarios of reform are simulated, a light scenario corresponding to a decrease of the Belgian NMR index from the current 2.63 to 2.16, and a strong scenario resulting in an index of 1.74.

The potential economic impacts of these two scenarios of reform are simulated using the European Commission’s DSGE QUEST III R&D model. The structural parameters of the model impacted by the reforms are the mark-up in professional services and the TFP both in the professional services and in the downstream industries. The results show that the limited reform corresponding to the light scenario may already increase GDP by 0.15% after 3 year, culminating in a 0.21% rise after 20 years. The more ambitious reform scenario, reducing the degree of regulation in Belgium to a level below the EU average but still considerably higher than the EU’s three least regulated countries (Denmark, Finland and Sweden), would increase GDP by 0.29% in the third year and 0.39% after 20 years. Moreover, as these reforms are fiscally neutral and boost GDP growth, they create some room for fiscal manoeuvre that could be used to decrease taxes or the public debt ratio.