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Should South Africa Have A Fiscal Rule?

Author

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  • Philippe Burger
  • Chandapiwa Jimmy

Abstract

Over the past three decades many countries have struggled to find solutions to their persistent public sector deficits. For some the solution to this problem seemingly became the adoption of fiscal rules. This paper considers the applicability of one such rule, namely the output‐sensitive deficit rule of Taylor, and in particular its applicability to South Africa. The paper shows that its applicability in developing countries such as South Africa might be limited due to higher output volatility that may cause output‐sensitive deficit rules such as the Taylor rule to become more volatile. Such volatility in the deficit/GDP ratio may cause fears that government may not be able to maintain the stability of the debt/GDP ratio, thereby again introducing fiscal unsustainability. To address this problem the paper augments the Taylor rule to reduce the volatility in the public debt/GDP ratio and demonstrates how these rules would have performed in South Africa. It concludes that the augmented fiscal rule might contribute to both fiscal sustainability and economic stability in South Africa.

Suggested Citation

  • Philippe Burger & Chandapiwa Jimmy, 2006. "Should South Africa Have A Fiscal Rule?," South African Journal of Economics, Economic Society of South Africa, vol. 74(4), pages 642-669, December.
    • Handle: RePEc:bla:sajeco:v:74:y:2006:i:4:p:642-669
    DOI: 10.1111/j.1813-6982.2006.00092.x
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    References listed on IDEAS

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    Cited by:

    1. Gladys A. A. Nabieu & Godfred A. Bokpin & Achampong K. Osei & Patrick O. Asuming, 2021. "The effects of fiscal governance on fiscal performance in Sub‐Saharan Africa," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5746-5761, October.
    2. Bets Oleksandr I., 2013. "State Debt in the Post-crisis Period: Realities and Prospects," Business Inform, RESEARCH CENTRE FOR INDUSTRIAL DEVELOPMENT PROBLEMS of NAS (KHARKIV, UKRAINE), Kharkiv National University of Economics, issue 10, pages 342-346.
    3. Eugene Msizi Buthelezi & Phocenah Nyatanga, 2023. "Time-Varying Elasticity of Cyclically Adjusted Primary Balance and Effect of Fiscal Consolidation on Domestic Government Debt in South Africa," Economies, MDPI, vol. 11(5), pages 1-27, May.
    4. Sean J. Gossel & Nicholas Biekpe, 2013. "The Cyclical Relationships Between South Africa's Net Capital Inflows and Fiscal and Monetary Policies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(2), pages 64-83, March.
    5. Charl Jooste & Marina Marinkov, 2012. "South Africa'S Transition To A Consolidated Budget," South African Journal of Economics, Economic Society of South Africa, vol. 80(2), pages 181-199, June.
    6. Stan Du Plessis & Ben Smit & Federico Sturzenegger, 2007. "The Cyclicality Of Monetary And Fiscal Policy In South Africa Since 1994," South African Journal of Economics, Economic Society of South Africa, vol. 75(3), pages 391-411, September.

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