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Fiscal Policy Uncertainty and Economic Activity in South Africa: An Asymmetric Analysis

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  • Goodness C. Aye

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

Abstract

This paper examined the asymmetric effect of fiscal policy uncertainty on real economic activity in South Africa. Quarterly time series data spanning from 1990:Q1 to 2018:Q2 are used. Fiscal policy uncertainty is defined as the GARCH (1,1) conditional variance in capital tax, consumption tax, labour income tax and government spending. The results based on linear projection models that allow for asymmetry show that in general high fiscal policy uncertainty exhibits a negative effect on real GDP while low fiscal uncertainty exhibits a positive effect on real GDP. High volatility (bad news) has larger effect in general than low volatility (good news).This disparity is significant especially for the response of real GDP to capital tax uncertainty and spending uncertainty. Therefore fiscal policy uncertainty has asymmetric effect on real economic activity in South Africa.

Suggested Citation

  • Goodness C. Aye, 2019. "Fiscal Policy Uncertainty and Economic Activity in South Africa: An Asymmetric Analysis," Working Papers 201922, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201922
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    References listed on IDEAS

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    Cited by:

    1. Eugene Msizi Buthelezi & Phocenah Nyatanga, 2023. "Threshold of the CAPB That Can Be Attributed to Fiscal Consolidation Episodes in South Africa," Economies, MDPI, vol. 11(6), pages 1-26, May.

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    More about this item

    Keywords

    Fiscal policy uncertainty; asymmetry; economic activity; impulse responses;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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