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The macroeconomics of establishing a basic income grant in South Africa

Author

Listed:
  • Hylton Hollander
  • Roy Haveman
  • Daan Steenkamp

Abstract

This paper quantifies the effect of fiscal transfers on the trade-off between social relief and debt accumulation, and discusses the economic growth and fiscal implications of different combinations of expanded social support and funding choices. Given South Africa’s already high level of public debt, the opportunity to fund a basic income grant through higher debt is limited. Using a general equilibrium model, the paper shows that extending the social relief of distress grant could be fiscally feasible provided taxes rise to fund such a programme. Implementing such a policy would, however, have a contractionary impact on the economy. A larger basic income grant (even at the level of the food poverty line) would threaten fiscal sustainability as it would require large tax increases that would crowd-out consumption and investment. The model results show that sustainably expanding social transfers requires structurally higher growth, which necessitates growth-enhancing reforms that crowd-in the private sector through, for example, relieving the energy constraint, increasing government infrastructure investment and expanding employment programmes.

Suggested Citation

  • Hylton Hollander & Roy Haveman & Daan Steenkamp, 2022. "The macroeconomics of establishing a basic income grant in South Africa," ERSA Working Paper Series, Economic Research Southern Africa, vol. 0.
  • Handle: RePEc:rza:ersawp:v::y:2022:i::id:19
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The macroeconomics of establishing a basic income grant in South Africa
      by Christian Zimmermann in NEP-DGE blog on 2022-11-21 16:27:17

    More about this item

    Keywords

    Universal basic income; DSGE; fiscal sustainability;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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