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Sustainable fiscal policy and economic growth in South Africa

Author

Listed:
  • Philippe Burger

    (Pro Vice-Chancellor: Poverty: Inequality and Economic Development, University of the Free State)

  • Estian Calitz

    (Professor Emeritus, Department of Economics, Stellenbosch University)

Abstract

Following years of fast-rising public debt levels and low economic growth, how can the South African government re-establish fiscal sustainability? To assess the sustainability of South African fiscal policy, we use Markov-Switching VARs to estimate fiscal reaction functions. The fiscal variables considered are the primary balance, total non-interest expenditure, total expenditure and total revenue. The MS-VAR also considers the impact of fiscal policy on economic growth. We subsequently consider what size of primary balance adjustment is required to stabilise the public debt/GDP ratio, followed by an assessment of the various revenue and expenditure adjustment options open to government to achieve the required primary balance adjustment. We find little scope to increase revenue, and that government’s salary bill and goods-and-services budget should carry the load of the adjustment. In addition, state-owned enterprises (SOEs) should be restructured urgently to arrest the fiscal risk SOE debts and guarantees hold for government finances.

Suggested Citation

  • Philippe Burger & Estian Calitz, 2019. "Sustainable fiscal policy and economic growth in South Africa," Working Papers 15/2019, Stellenbosch University, Department of Economics.
    • Handle: RePEc:sza:wpaper:wpapers329
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    References listed on IDEAS

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    Cited by:

    1. Havemann, Roy & Hollander, Hylton, 2024. "Fiscal policy in times of fiscal stress (or what to do when r > g)," Journal of Policy Modeling, Elsevier, vol. 46(5), pages 1020-1054.
    2. Olumide Olusegun Olaoye & Phillip A. Olomola, 2023. "Sub‐Saharan Africa's rising public debt stock: Is there a cause for concern?," South African Journal of Economics, Economic Society of South Africa, vol. 91(1), pages 85-115, March.

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    More about this item

    Keywords

    Public debt; budget deficit; primary balance; economic growth; government expenditure; tax revenue;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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