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Debt sustainability and financial crises in South Africa

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  • Leroi Raputsoane and Ruthira Naraidoo
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    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 debt-to-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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    File URL: http://www.econrsa.org/node/821
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    Bibliographic Info

    Paper provided by Economic Research Southern Africa in its series Working Papers with number 403.

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    Length: 15 pages
    Date of creation: 2014
    Date of revision:
    Handle: RePEc:rza:wpaper:403

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    Keywords: Debt sustainability; thresholds; financial crises;

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