Fiscal regime changes and the sustainability of fiscal imbalance in South Africa; a smooth transition error-correction approach
In addition to the conventional linear cointegration test, this paper tests the asymmetry relationship between fiscal revenue and expenditure, by making a distinction between the adjustment of positive (budget surplus) and negative (budget deficit) deviations from equilibrium. The analysis uses quarterly data for South Africa. The paper reveals that government authorities in South Africa are more likely to react fast when the budget is in deficit than when in surplus, and that the stabilisation measures used by government are fairly neutral at low deficit levels; that is, at deficit levels of 4% of GDP and below. We conclude that an attempt to achieve fiscal sustainability via a reduction in expenditure on sectors conducive to economic growth might be prone to create social and political shocks, which could render such fiscal policy unsustainable. In South Africa the main fiscal challenge, therefore, is to find ways through which the recent gains in fiscal solvency can be consolidated.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 021 671-3980
Fax: +27 21 671 3912
Web page: http://www.econrsa.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- van Dijk, D.J.C. & Franses, Ph.H.B.F., 1997. "Nonlinear Error-Correction Models for Interest Rates in The Netherlands," Econometric Institute Research Papers EI 9704-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Makrydakis, Stelios & Tzavalis, Elias & Balfoussias, Athanassios, 1998.
"Policy regime changes and the long-run sustainability of fiscal policy: an application to Greece,"
Elsevier, vol. 16(1), pages 71-86, January.
- Makrydakis, S. & Tzavalis, E. & Balfoussias, A., 1996. "Policy Regime Changes and the Long-Run Sustainability of Fiscal Policy: An Application to Greece," Discussion Papers 9601, Exeter University, Department of Economics.
- Feve, Patrick & Henin, Pierre-Yves, 2000.
" Assessing Effective Sustainability of Fiscal Policy within the G-7,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 62(2), pages 175-95, May.
- Fève, Patrick & Hénin, Pierre-Yves, 1998. "Assessing effective sustainability of fiscal policy within the G-7," CEPREMAP Working Papers (Couverture Orange) 9815, CEPREMAP.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990.
"Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?,"
8905, Michigan State - Econometrics and Economic Theory.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
- Kenneth Rogoff & Anne Sibert, 1986.
"Elections and Macroeconomic Policy Cycles,"
NBER Working Papers
1838, National Bureau of Economic Research, Inc.
- Hatemi-J, Abdulnasser, 2002.
"Fiscal policy in Sweden: effects of EMU criteria convergence,"
Elsevier, vol. 19(1), pages 121-136, January.
- Hatemi-J, Abdulnasser, 1999. "Fiscal Policy in Sweden: Effects of EMU Criteria Convergence," Working Papers 1999:5, Lund University, Department of Economics, revised Nov 1999.
- Jansen, Eilev S & Terasvirta, Timo, 1996.
"Testing Parameter Constancy and Super Exogeneity in Econometric Equations,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 58(4), pages 735-63, November.
- Jansen, Eilev S. & Teräsvirta, Timo, 1995. "Testing Parameter Constancy and super Exogeneity in Econometric Equations," SSE/EFI Working Paper Series in Economics and Finance 53, Stockholm School of Economics.
- Baharumshah, Ahmad Zubaidi & Lau, Evan, 2007.
"Regime changes and the sustainability of fiscal imbalance in East Asian countries,"
Elsevier, vol. 24(6), pages 878-894, November.
- Ahmad Zubaidi Baharumshah & Evan Lau, 2005. "Regime Changes And The Sustainability Of Fiscal Imbalance In East Asian Countries," Macroeconomics 0504001, EconWPA.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Trehan, Bharat & Walsh, Carl E., 1988.
"Common trends, the government's budget constraint, and revenue smoothing,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 12(2-3), pages 425-444.
- Bharat Trehan & Carl E. Walsh, 1987. "Common trends, the government's budget constraint, and revenue smoothing," Working Papers in Applied Economic Theory 87-11, Federal Reserve Bank of San Francisco.
- van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000.
"Smooth Transition Autoregressive Models - A Survey of Recent Developments,"
SSE/EFI Working Paper Series in Economics and Finance
380, Stockholm School of Economics, revised 17 Jan 2001.
- Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 1-47.
- van Dijk, D.J.C. & Terasvirta, T. & Franses, Ph.H.B.F., 2000. "Smooth transition autoregressive models - A survey of recent developments," Econometric Institute Research Papers EI 2000-23/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- James D. Hamilton & Marjorie A. Flavin, 1985.
"On the Limitations of Government Borrowing: A Framework for Empirical Testing,"
NBER Working Papers
1632, National Bureau of Economic Research, Inc.
- Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September.
- Gael M. Martin, 2000.
"US deficit sustainability: a new approach based on multiple endogenous breaks,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 15(1), pages 83-105.
- Martin, G.M., 1998. "U.S. Deficit Sustainability: A New Approach Based on Multiple Endogenous Breaks," Monash Econometrics and Business Statistics Working Papers 1/98, Monash University, Department of Econometrics and Business Statistics.
- Agyenim Boateng & Ruthira Naraidoo & Moshfique M. Uddin, 2009. "An Analysis of the Inward Cross-border Mergers and Acquisitions in the UK: A Macroeconomic Perspective," Working Papers 200924, University of Pretoria, Department of Economics.
- Cipollini, Andrea, 2001. "Testing for Government Intertemporal Solvency: A Smooth Transition Error Correction Model Approach," Manchester School, University of Manchester, vol. 69(6), pages 643-55, December.
- Cunado, J. & Gil-Alana, L. A. & Perez de Gracia, F., 2004. "Is the US fiscal deficit sustainable?: A fractionally integrated approach," Journal of Economics and Business, Elsevier, vol. 56(6), pages 501-526.
- Álvaro Escribano & Oscar Jordá, 2001. "Testing nonlinearity: Decision rules for selecting between logistic and exponential STAR models," Spanish Economic Review, Springer, vol. 3(3), pages 193-209.
- Bravo, Ana Bela Santos & Silvestre, Antonio Luis, 2002. "Intertemporal sustainability of fiscal policies: some tests for European countries," European Journal of Political Economy, Elsevier, vol. 18(3), pages 517-528, September.
- Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-45, July.
- Gerald P. Dwyer, Jr. & Peter Locke & Wei Yu, 1995.
"Index arbitrage and nonlinear dynamics between the S&P 500 futures and cash,"
95-17, Federal Reserve Bank of Atlanta.
- Dwyer, Gerald P, Jr & Locke, Peter R & Yu, Wei, 1996. "Index Arbitrage and Nonlinear Dynamics between the S&P 500 Futures and Cash," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 301-32.
- Kasai Ndahiriwe & Rangan Gupta, 2007. "Temporal Causality between Taxes and Public Expenditures: The Case of South Africa," Working Papers 200709, University of Pretoria, Department of Economics.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
- A. Roux, 1993. "The Public Debt: A Medium-term Perspective," South African Journal of Economics, Economic Society of South Africa, vol. 61(4), pages 10-29, December.
- David G. McMillan, 2004. "Non-Linear Error Correction: Evidence for UK Interest Rates," Manchester School, University of Manchester, vol. 72(5), pages 626-640, 09.
- Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-17, October.
When requesting a correction, please mention this item's handle: RePEc:rza:wpaper:228. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yoemna Mosaval)
If references are entirely missing, you can add them using this form.