Stress test municipality of Breda
SEO Economic Research carried out a stress test for the finances of the municipalities Amsterdam, Rotterdam, The Hague, Eindhoven, Breda, Haarlemmermeer, Leidschendam-Voorburg, Tilburg and Zoetermeer. The possible consequences of exogenous shocks for the financial position of a specific municipality are examined. The exogenous shocks are: a financial crisis (an increase in the interest rate and an increase in inflation), a social-economic crisis (economic contraction and an increase in the unemployment rate), a real estate crisis, and central government cuts. Extreme, but plausible scenarios are formulated.
To calculate the effects of these exogenous shocks, a model is build using the municipality’s financial statements. This model encompasses quantitative relations among the variables in which exogenous shocks take place and the various items in the financial statement of Breda that are influenced by the exogenous shocks. The model also contains a number of lower level variables that make it possible to further examine the variations of the exogenous shocks. The model is sufficiently flexible, such that the effects from both small and large exogenous shocks and the effects of various combinations of shocks can be calculated. The model is also suitable for future use since it is possible to replace the base year financial data with new information from income and expenditure statements.
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