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The Macroeconomic Effects of Government Spending Under Fiscal Foresight

Author

Listed:
  • Charl Jooste

    (Department of Economics, University of Pretoria)

  • Ruthira Naraidoo

    (Department of Economics, University of Pretoria)

Abstract

Consumption and output responses to fiscal shocks are studied in a model with fiscal foresight. Fiscal foresight reduces both output multipliers and consumption. However, key features such as sticky wages, credit constrained households and elastic labour supply, are able to generate both sizeable output multipliers and positive consumption - in effect preserving key Keynesian effects. This model fits a developing economy like South Africa well since it is able to capture transparent communication of government as well as control for credit constrained consumption and sticky wages.

Suggested Citation

  • Charl Jooste & Ruthira Naraidoo, 2015. "The Macroeconomic Effects of Government Spending Under Fiscal Foresight," Working Papers 201506, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201506
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    Cited by:

    1. Makrelov, Konstantin & Arndt, Channing & Davies, Rob & Harris, Laurence, 2020. "Balance sheet changes and the impact of financial sector risk-taking on fiscal multipliers," Economic Modelling, Elsevier, vol. 87(C), pages 322-343.
    2. Johannes Hermanus Kemp & Hylton Hollander, 2020. "A medium-sized, open-economy, fiscal DSGE model of South Africa," WIDER Working Paper Series wp-2020-92, World Institute for Development Economic Research (UNU-WIDER).
    3. Sarb, 2020. "OBEN 2001 November 2020," Occasional Bulletin of Economic Notes 11003, South African Reserve Bank.
    4. Serena Merrino, 2021. "Statedependent fiscal multipliers and financial dynamics An impulse response analysis by local projections for South Africa," Working Papers 11015, South African Reserve Bank.
    5. Christopher Loewald & David Faulkner & Konstantin Makrelov, 2020. "Time consistency and economic growth a case study of south african macroeconomic policy," Working Papers 10421, South African Reserve Bank.
    6. Naser Yenus Nuru, 2023. "Public spending, credit market conditions and economic activity in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 91(3), pages 394-415, September.
    7. Gideon du Rand & Hylton Hollander & Dawie van Lill, 2023. "Time-varying fiscal multipliers for South Africa: A large time-varying parameter vector autoregression approach," WIDER Working Paper Series wp-2023-106, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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