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Debt sustainability and financial crises in South Africa

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Author Info

  • Ruthira Naraidoo

    ()
    (Department of Economics, University of Pretoria)

  • Leroi Raputsoane

    (South African Reserve Bank)

Abstract

This study assesses debt sustainability in South Africa allowing for possible nonlinearities in the form of threshold behaviour by fiscal authorities. A long historical data series on the debtto- GDP ratio and models with fixed and time-varying thresholds allowing the level of debt to vary relative to its recent history and the occurrence of financial crises are used in the analysis. First, the results reveal that fiscal consolidation occurs at a much lower debt-to-GDP ratio of 46 percent in the period 1946 to 2010 compared to 65 percent in the period 1865 to 1945. Secondly, the results provide evidence of a statistically insignificant fiscal consolidation below these threshold levels. Thirdly, the results reveal that fiscal consolidation occur at a higher debt-to-GDP ratio during financial crises periods.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201352.

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Length: 24 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:pre:wpaper:201352

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Keywords: Sovereign debt; thresholds; financial crisis;

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