Fiscal cyclicality in South African public expenditures: Do asymmetries explain inconsistencies?

The most recent sub-prime crisis, the Euro-debt crisis and the global recessionary period have resurrected a debate on the nature of fiscal cyclicality in the South African economy. Our study questions whether the cyclicality of public policy has evolved asymmetrically and holds differently over the recessionary and expansionary phases of the South African business cycle for a quarterly period of 2001:01 – 2018:04. To ensure that the business cycle is inherent to our estimation process we rely on the nonlinear autoregressive distributive lag (N-ARDL) model as empirical framework. Our empirical results point to nonlinear cyclicality in fiscal expenditures where government behaves procyclical in the upswing of the business cycle whilst behaving countercyclical during economic downswings. These findings are robust to alternative specifications, inclusion of control variables and estimations across different subsamples. Policy implications are also offered.