Countercyclical fiscal policy in South Africa: Role and iImpact of automatic fiscal stabilisers

Abstract

As actual budget balances reflect both cyclical developments and discretionary measures, they are not very useful when seeking to assess the orientation of underlying fiscal policy and possible structural imbalances in the budget balance. The influence of fluctuations in economic growth on the government's budget balance can be examined by decomposing the actual budget into a cyclical and a structural or cyclically adjusted component. The former component shows the effect on the government budget of cyclical fluctuations in economic activity, the latter reflects what the budget balance would be if economic activity were at its trend level. This paper calculates the extent to which fiscal policy stabilises output fluctuations in South Africa and estimates the cyclically adjusted budget balance of the consolidated general government as an alternative fiscal indicator that can contribute to more effective fiscal policy and fiscal analysis.JEL E63

South Africa's Transition to a Consolidated Budget

“…2 presents the estimate of the automatic stabilisers for South Africa that is calculated as the share of government (general government expenditure as a percent of GDP) multiplied by the output gap 27 . This variable verifies Swanepoel and Schoeman's (2003) general finding, in that prior to 2000, the size of automatic stabilisers has been small. However, after 2000, the size of automatic stabilisers has increased significantly, reaching a peak of about 1.5 as a percentage of GDP.…”

“…The role of automatic stabilisers in South Africa has also received some attention. Swanepoel and Schoeman (2003) use ordinary least squares (OLS) regressions to ascertain the size of automatic stabilisers since 1970. Their results show that automatic stabilisers have been small prior to 2000 and have only increased in the latter parts of their sample (which spans the 1970‐2000 period) 6 .…”

“…6 6 The size of automatic stabilisers in the Swanepoel and Schoeman (2003) estimation varies from 0% to 1.5% of potential GDP. …”

Counter-Cyclical Challenges of Fiscal Policy: A Comparitive Analysis of South Africa and Brics Countries

“…The South African government decided soon after the outbreak of the 2008 financial crisis and in conjunction with G20 coordinated policy programs to apply counter cyclical fiscal policy. According to (Swanepoel and Schoeman, 2003), countercyclical fiscal policy requires government deficit and debt to swell during times of economic recessions and to decline during economic booms again. The government debt levels increased from a fairly low basis as percentage of GDP because of fiscal stimulation programs.…”

Fiscal and monetary policy in a commodity‐based economy1

“…2 2 See among others Du Plessis and Smit (2003), Du Plessis (2006), Swanepoel and Schoeman (2003), and Swanepoel (2004). …”