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Fiscal policy and economic growth in South Africa

Fiscal policy and economic growth in South Africa Purpose – This paper aims to examine the effects of fiscal policy associated with increases in government expenditures, tax revenue and budget deficit on the South African economy. Design/methodology/approach – Structural VARs based on the Blanchard‐Quard decomposition identification scheme were used in the empirical analysis. With the aid of quarterly data covering the period 1990:1 to 2008:4, the identified true models are used to estimate various impulse‐response functions. The impulse‐response functions represent the responses of real output and interest rates to shocks from tax revenue, budget deficit and government consumption and investment expenditures. Findings – The results suggest that the fiscal policy instruments have varied effects on output and interest rates. The effect of the fiscal policy on output appears to be quite modest but persistent; however, the response from interest rate is temporary and substantial most cases. Originality/value – The debate on the efficacy of fiscal policy in stimulating growth seems to have assumed new prominence in the wake of the recent global financial crisis. This paper contributes to the discourse from a South African focused empirical effort. Other fiscal policy authorities may find the paper valuable. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Fiscal policy and economic growth in South Africa

Matthew Kofi Ocran
Journal of Economic Studies , Volume 38 (5): 15 – Sep 27, 2011
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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
0144-3585
DOI
10.1108/01443581111161841
Publisher site
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Abstract

Purpose – This paper aims to examine the effects of fiscal policy associated with increases in government expenditures, tax revenue and budget deficit on the South African economy. Design/methodology/approach – Structural VARs based on the Blanchard‐Quard decomposition identification scheme were used in the empirical analysis. With the aid of quarterly data covering the period 1990:1 to 2008:4, the identified true models are used to estimate various impulse‐response functions. The impulse‐response functions represent the responses of real output and interest rates to shocks from tax revenue, budget deficit and government consumption and investment expenditures. Findings – The results suggest that the fiscal policy instruments have varied effects on output and interest rates. The effect of the fiscal policy on output appears to be quite modest but persistent; however, the response from interest rate is temporary and substantial most cases. Originality/value – The debate on the efficacy of fiscal policy in stimulating growth seems to have assumed new prominence in the wake of the recent global financial crisis. This paper contributes to the discourse from a South African focused empirical effort. Other fiscal policy authorities may find the paper valuable.

Journal

Journal of Economic Studies – Emerald Publishing

Published: Sep 27, 2011

Keywords: Fiscal policy; Output; Structural VAR; National economy; South Africa

References

  • Is public expenditure productive?
    Aschauer, D.A.
  • Government spending in a simple model of endogenous growth model
    Barro, R.J.
  • Public finance in models of economic growth
    Barro, R.; Sala‐i‐Martin, X.
  • Economic Growth
    Barro, R.J.; Sala‐i‐Martin, X.