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Do Fiscal Regimes Matter for Fiscal Sustainability in South Africa? A Markov-Switching Approach

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  • Gabriel Temesgen Woldu

Abstract

This paper empirically examines South Africa’s fiscal sustainability through a Markov-switching model which utilizes quarterly datasets for the period from 1960 to 2019. The results show that public debt responds positively, demonstrating a sustainable fiscal policy. Furthermore, considering the regime-specific feedback coefficients of the fiscal policy rule and the durations of fiscal regimes, the study finds that South Africa’s fiscal policy satisfies the No-Ponzi game condition. Therefore, from a policy perspective, the South African government should take measures such as pension reforms, reducing operational expenses, reducing subsidies, and funding micro and small enterprises to gain the double dividend on the expenditure side along with revenue-enhancing measures on consumption taxes to achieve stable public finances and lower debt levels.

Suggested Citation

  • Gabriel Temesgen Woldu, 2022. "Do Fiscal Regimes Matter for Fiscal Sustainability in South Africa? A Markov-Switching Approach," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 68(1), pages 53-78.
    • Handle: RePEc:dah:aeqaeq:v68_y2022_i1_q1_p53-78
    DOI: 10.3790/aeq.68.1.53
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    More about this item

    Keywords

    fiscal sustainability; Markov-switching model; South Africa;
    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
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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