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Adjusting South Africa'S Fiscal Balance For Terms-Of-Trade Effects

  • Jan a. Swanepoel
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    Standard output gap-based calculations and interpretations of the cyclical component of the fiscal balance may convey a misleading picture in countries such as South Africa which experience substantial movements in their terms of trade. This paper therefore adjusts South Africa's general government primary balance for terms-of-trade effects by means of an alternative calculation of the transitory component based on a measure of the real income gap rather than the real output gap. The results indicate that measures of the cyclical component of the budget balance based on real income and real output gaps generally yield broadly similar results over history, but during exceptional periods of rapid changes in commodity prices, the measures can be very different. Copyright (c) 2007 The Author. Journal compilation (c) 2007 Economic Society of South Africa.

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    Article provided by Economic Society of South Africa in its journal South African Journal of Economics.

    Volume (Year): 75 (2007)
    Issue (Month): 4 (December)
    Pages: 719-727

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    Handle: RePEc:bla:sajeco:v:75:y:2007:i:4:p:719-727
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