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A fiscal rule to produce counter-cyclical fiscal policy in South Africa

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  • Stan du Plessis

    ()
    (Department of Economics, Stellenbosch University)

  • Willem Boshoff

    ()
    (Department of Economics, Stellenbosch University)

Abstract

This paper considers the role of fiscal policy as a component of stabilisation policy in South Africa. The South African economy – like many others, most notably the United States – has experienced considerable economic stability over the last decade. At stake in this paper is whether fiscal policy had intentionally or unintentionally contributed to this favourable outcome. A number of techniques are used to investigate the cyclicality of fiscal outcomes since the early 1990s in South Africa and the evidence does not support claims that South African fiscal policy had been pro-cyclical (and hence destabilising) overt this period. But to prevent potential fiscal pro-cyclicality from becoming a reality in South Africa a package of reforms is derived that is consistent with the empirical evidence presented. The recommended reform includes: firstly, a fiscal rule that includes the following features: a numerical limit on the ratio of government expenditure to GDP and a commitment to a balanced budget (adjusted for the economic cycle), which would allow automatic revenue stabilisers to ensure a counter-cyclical policy. Secondly, a procedural rule that requires an independent business cycle commission to calculate potential GDP, the output gap and the adjustments required to calculate the structural budget balance. This depoliticised commission will enhance fiscal transparency and prevent the temptation by fiscal authorities to adjust these estimates, which have undermined some fiscal rules in practice.

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File URL: http://www.ekon.sun.ac.za/wpapers/2007/wp132007/wp-13-2007.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 13/2007.

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Date of creation: 2007
Date of revision:
Handle: RePEc:sza:wpaper:wpapers44

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Related research

Keywords: Fiscal policy; Stabilisation policy; Structural budget balance; Fiscal stance; Fiscal rules;

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Cited by:
  1. Tatiana Lysenko & Geoff Barnard, 2011. "Strengthening the Macroeconomic Policy Framework in South Africa," OECD Economics Department Working Papers 847, OECD Publishing.
  2. Stan Du Plessis & Kevin Kotze, 2012. "Trends and Structural Changes in South African Macroeconomic Volatility," Working Papers 297, Economic Research Southern Africa.
  3. Stan du Plessis & Ben Smit & Federico Sturzenegger, 2007. "The cyclicality of monetary and fiscal policy in South Africa since 1994," Working Papers 12/2007, Stellenbosch University, Department of Economics.
  4. Irene Yackovlev & Victor Duarte Lledo & Lucie Gadenne, 2009. "Cyclical Patterns of Government Expenditures in Sub-Saharan Africa," IMF Working Papers 09/274, International Monetary Fund.
  5. Kibambe Jacques Ngoie & Niek Schoeman, 2009. "Modelling the Impact of Automatic Fiscal Stabilisers on Output Stabilisation in South Africa," Working Papers 129, Economic Research Southern Africa.
  6. Estian Calitz & Krige Siebrits & Ian Stuart, 2013. "Enhancing the credibility of fiscal forecasts in South Africa: Is a fiscal council the only way?," Working Papers 25/2013, Stellenbosch University, Department of Economics.
  7. Estian Calitz & Stan du Plessis & Krige Siebrits, 2013. "Fiscal sustainability in South Africa: Will history repeat itself?," Working Papers 07/2013, Stellenbosch University, Department of Economics.

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