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Debt sustainability and financial crises in South Africa

  • Ruthira Naraidoo

    ()

    (Department of Economics, University of Pretoria)

  • Leroi Raputsoane

    (South African Reserve Bank)

This study assesses debt sustainability in South Africa allowing for possible nonlinearities in the form of threshold behaviour by fiscal authorities. A long historical data series on the debtto- GDP ratio and models with fixed and time-varying thresholds allowing the level of debt to vary relative to its recent history and the occurrence of financial crises are used in the analysis. First, the results reveal that fiscal consolidation occurs at a much lower debt-to-GDP ratio of 46 percent in the period 1946 to 2010 compared to 65 percent in the period 1865 to 1945. Secondly, the results provide evidence of a statistically insignificant fiscal consolidation below these threshold levels. Thirdly, the results reveal that fiscal consolidation occur at a higher debt-to-GDP ratio during financial crises periods.

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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201352.

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Length: 24 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:pre:wpaper:201352
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Web page: http://www.up.ac.za/economics

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  17. Lusine Lusinyan & John Thornton, 2009. "The sustainability of South African fiscal policy: an historical perspective," Applied Economics, Taylor & Francis Journals, vol. 41(7), pages 859-868.
  18. Samuel S Jibao & Niek Schoeman & Ruthira Naraidoo, 2010. "Fiscal Regime Changes and the Sustainability of Fiscal Imbalance in South Africa: A Smooth Transition Error-Correction Approach," Working Papers 201023, University of Pretoria, Department of Economics.
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