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Autonomous Expenditure Multipliers and Gross Value Added in South Africa

Author

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  • Arogundade, Sodiq
  • Bila, Santos
  • Jan Derkacz, Arkadiusz

Abstract

Empirical evidence from the literature suggest that autonomous expenditure multipliers are crucial in modern economic development. This study answers two main questions. What is the South African fiscal, export and investment multipliers? Is obtaining the impact of autonomous expenditure on gross value-added growth rate possible? In achieving this, we use the principle of aggregate demand and data from different sources such as Stats SA, South African Reserve Bank, WDI as well as OECD data from 1992 to 2019. The results suggest that autonomous expenditure multipliers exert a positive effect on the change in gross value added. These multipliers are however driven by several factors. First, the import intensity level - the import intensities of each autonomous expenditure reduce their significance. This means that the leakage of aggregate demand in the form of expenditure on the purchase of imported goods increases. Secondly, the value of the fiscal, investment and export multipliers is determined by the propensity for total private consumption. The value of the propensity for total private consumption depends on the household income taxes and the propensity to save. An increase in these two ratios decreases the value of the propensity to private consumption. This indicates that the leakage of aggregate demand is driven by a decline in total private consumption in the economy, and this may be caused by an increase in savings and/or an increase in the average household income tax.

Suggested Citation

  • Arogundade, Sodiq & Bila, Santos & Jan Derkacz, Arkadiusz, 2021. "Autonomous Expenditure Multipliers and Gross Value Added in South Africa," MPRA Paper 111115, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:111115
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    References listed on IDEAS

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    1. Konstantin Makrelov & Channing Arndt & Rob Davies & Laurence Harris, 2018. "Fiscal multipliers in South Africa: The importance of financial sector dynamics," WIDER Working Paper Series wp-2018-6, World Institute for Development Economic Research (UNU-WIDER).
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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F0 - International Economics - - General

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