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A partial general equilibrium analysis of fiscal policy injection on inequality in South Africa

Author

Listed:
  • Kambale Kavese

    (Eastern Cape Socio Economic Consultation Council)

  • Andrew Phiri

    (Department of Economics, Nelson Mandela University)

Abstract

This study employs a partial general equilibrium approach calibrated on the Social Accounting Matrix (SAM) and a contemporaneous dynamic computable general equilibrium (CGE) model to assess the effect of expansionary fiscal policy on economic growth, income inequality, poverty, employment and inequality reduction in South Africa. The simulation results reveal that expansionary fiscal policy i) benefits rich ‘white’ households the most and poor ‘coloured’ households the least ii) improves adult employment more than youth employment iii) improves employment in urban areas as proposed to employment in rural areas iv) has a very small effect on improving economic growth and reducing the Gini coefficient v) benefits ‘well-off’ households more than it does ‘poor’ households vi) promotes ‘low-skilled’ employment more than it does for ‘high-skilled’ labourers. Associated policy implications based on our findings are also discussed.

Suggested Citation

  • Kambale Kavese & Andrew Phiri, 2020. "A partial general equilibrium analysis of fiscal policy injection on inequality in South Africa," Working Papers 2001, Department of Economics, Nelson Mandela University, revised Jan 2020.
    • Handle: RePEc:mnd:wpaper:2001
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    File URL: http://repec.mandela.ac.za/RePEc/mnd/wpaper/paper.2001.pdf
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    References listed on IDEAS

    as
    1. B. Decaluwé & L. Savard & E. Thorbecke, 2005. "General Equilibrium Approach for Poverty Analysis: With an Application to Cameroon," African Development Review, African Development Bank, vol. 17(2), pages 213-243.
    2. repec:rza:wpaper:544 is not listed on IDEAS
    3. Mabugu, Ramos & Robichaud, Veronique & Maisonnave, Helene & Chitiga, Margaret, 2013. "Impact of fiscal policy in an intertemporal CGE model for South Africa," Economic Modelling, Elsevier, vol. 31(C), pages 775-782.
    4. World Bank, 2014. "South Africa Economic Update : Fiscal Policy and Redistribution in an Unequal Society," World Bank Publications - Reports 20661, The World Bank Group.
    5. Lumengo Bonga-Bonga & Jean Luc Erero & Rangan Gupta, 2016. "Impact of Activity Tax in the Property-Owning and Subletting of Fixed Property Sectors on the South African Economy: A CGE Analysis," Journal of Real Estate Literature, Taylor & Francis Journals, vol. 24(2), pages 345-357, January.
    6. N. Hérault, 2006. "Building And Linking A Microsimulation Model To A Cge Model For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 74(1), pages 34-58, March.
    7. Franco Donzelli, 2006. "Walras and pareto on the meaning of the solution concept in general equilibrium theory," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 53(4), pages 491-530, December.
    8. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550, November.
    9. Böhringer, Christoph & Rutherford, Thomas Fox & Wiegard, Wolfgang, 2003. "Computable general equilibrium analysis: Opening a black box," ZEW Discussion Papers 03-56, ZEW - Leibniz Centre for European Economic Research.
    10. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-1051, September.
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    Cited by:

    1. Jeanne Terblanche & Dawie van Lill & Hylton Hollander, 2024. "Fiscal policy and dimensions of inequality in South Africa: A time‐varying coefficient approach," South African Journal of Economics, Economic Society of South Africa, vol. 92(1), pages 105-119, March.

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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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