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GTAP Resource #3479

"Fiscal Imbalances in South Africa: An Intertemporal Analysis"
by Chitiga, Margaret, Ramos Mabugu, Helene Maisonnave and Veronique Robichaud

The global financial crises and subsequent recessions in advanced economies of the world have prompted robust debates in the South African political economy regarding the conduct of fiscal policy. In the aftermath of the 2008 global financial crises, South Africa experienced sharp contractions in its major economic sectors (especially mining and manufacturing). By June 2009, two consecutive quarters of contraction in gross domestic product (GDP) resulted in the country’s first recession since 1992. This state of affairs prompted a number of calls on the government to formulate measures centered on using public spending to (i) mitigate against the effects of the recession, and (ii) protect firms and employment in vulnerable economic sectors. Furthermore, an expansionary approach that boosts public expenditure and investment could be more effective for poverty alleviation and welfare enhancing economic redistribution. This paper focus is on the implications of South African government running fiscal deficits, namely not covering its current expenditure out of tax revenue using an intertemporal CGE model. Preliminary simulations have shown that an expansive fiscal policy would have short run positive impact on GDP but would translate into a greater debt to GDP ratio. Assuming that the government would finance its spending through increased taxes would allow it to maintain a constant debt to GDP ratio but at the same time, mitigate the positive impact on GDP. The possibility for the government to run greater deficits in some periods as long as there are surpluses in the future to compensate and get back to a sustainable debt level is also analyzed.

Resource Details (Export Citation) GTAP Keywords
Category: 2011 Conference Paper
Status: Published
By/In: Presented at the 14th Annual Conference on Global Economic Analysis, Venice, Italy
Date: 2011
Created: Robichaud, V. (3/7/2011)
Updated: Robichaud, V. (4/13/2011)
Visits: 1,787
- Domestic policy analysis
- Economic growth
- Economic development
- Dynamic modeling
- Africa (Southern)

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