Debt-financed fiscal stimulus in South Africa

Abstract

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The macroeconomics of establishing a basic income grant in South Africa

“…7 A medium-scale DSGE model is estimated with Bayesian methods on historical South African macroeconomic and fiscal data and used to make quarterly projections based on alternative fiscal policy scenarios. This model is being developed for the National Treasury ('NT-DSGE' hereafter) for fiscal policy analysis (see Hollander, 2021;Kemp & Hollander, 2020). The NT-DSGE model incorporates several distinguishing features in the context of assessing the impact of a BIG:…”

“…Section 3 focuses on this aspect of the results in more detail. The appendix accompanying the longer working paper version of this article provides more technical details about the fiscal block and the six fiscal instruments (see Hollander et al, 2022). Lastly, the framework assumes that monetary policy and fiscal policy respond contemporaneously to achieve their policy objectives (e.g.…”

“…A medium‐scale DSGE model is estimated with Bayesian methods on historical South African macroeconomic and fiscal data and used to make quarterly projections based on alternative fiscal policy scenarios. This model is being developed for the National Treasury (‘NT‐DSGE’ hereafter) for fiscal policy analysis (see Havemann & Hollander, 2022; Hollander, 2021; Kemp & Hollander, 2020). The NT‐DSGE model incorporates several distinguishing features in the context of assessing the impact of a BIG: The model is dynamic (it is multi‐period), stochastic (it includes uncertainty) and general equilibrium (it captures the interaction of supply and demand in key markets). The model distinguishes between two types of households (poor and rich) allowing for an analysis of both macroeconomic and redistributive policies, as well as net consumption and labour supply effects. Firm and household behaviour is guided by forward‐looking expectations. The model identifies the relative impacts of different tax policy mixes (VAT, PIT and CIT) and adjustments to the composition of public expenditure (consumption, investment and transfers). The simultaneous reactions of fiscal and monetary policy to economic outcomes. The model includes channels through which the domestic economy is affected by foreign trade and capital markets. …”

“…2 For a discussion of the literature related to this paper see Hollander et al (2022). One of the few existing macroeconomic modelling exercises is van Seventer et al (2021).…”

“…For the fiscal implications of stagnant growth see an earlier, related study on the optimal fiscal strategy for South Africa by Havemann and Hollander (2022). Hollander et al (2022) summarise these stylized facts on socioeconomic developments and the fiscal framework.…”