On the Cyclicality of South African Fiscal Policy

Thornton, John

doi:10.1111/j.1813-6982.2007.00114.x

Cited by 10 publications

(6 citation statements)

References 23 publications

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“…This finding is contrary to the dominant literature showing that fiscal policy tends to be pro-cyclical in developing countries (Carmignani, 2010; Kassouri and Altıntaş, 2021). However, the findings of this study are consistent with Thornton (2007) who showed that South African fiscal policy is counter-cyclical.…”

Section: Resultssupporting

confidence: 92%

Macroeconomic determinants of fiscal policy in East Africa: a panel causality analysis

Mawejje

Odhiambo

2022

JEFAS

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PurposeThis study investigates the dynamic causality linkages between fiscal deficits and selected macroeconomic indicators in a panel of five East African Community countries.Design/methodology/approachThe research design is based on panel cointegration tests, panel cross-section dependence tests, panel error correction-based Granger causality tests and panel impulse response functions.FindingsResults show that there is long-run feedback causality among fiscal deficits and each of the variables include gross domestic product (GDP) growth, current account balance, interest rates, inflation, grants and debt service. Short-run Granger causality dynamics indicate that there is feedback causality between fiscal deficits and GDP growth; no causality between fiscal deficits and inflation; no causality between fiscal deficits and current account; no causality between fiscal deficits and interest rates; feedback causality between fiscal deficits and grants; and no causality between fiscal deficits and debt service. Impulse response functions show positive and significant impacts of current account balance, inflation and grants; negative and significant impacts of real GDP growth and lending rates; and insignificant effects of debt service.Research limitations/implicationsWhile the study examines the dynamic causality between fiscal deficits and selected macroeconomic indicators in the East African Community, the analysis excludes South Sudan due to significant data limitations.Practical implicationsIn light of the East African Community's aspirations to achieve convergence on key macroeconomic targets, including the fiscal deficit, this research provides novel insights on fiscal policy determinants and causality dynamics.Social implicationsThe dynamic relationships between fiscal policy and macroeconomic variables may have social implications for welfare, equitable growth and distribution of resources.Originality/valueWith a focus on the East African Community, this paper contributes to the literature on the macroeconomic determinants of fiscal deficits in regional economic communities.

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Section: Resultssupporting

confidence: 92%

Macroeconomic determinants of fiscal policy in East Africa: a panel causality analysis

Mawejje

Odhiambo

2022

JEFAS

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“…The same method yielded no statistically significant correlation between government revenue and GDP growth. Thornton's (2007:262‐263) evidence of counter‐cyclical government expenditure confirms the results of Du Plessis (2006), but his evidence on the acyclicality of government revenue stands in sharp contrast with Du Plessis and Boshoff's (2007) evidence on the highly cyclical pattern of government revenue in South Africa.…”

mentioning

confidence: 78%

“…The recent South African literature on the topic has seen the use of four different empirical measures, viz. : (i) using a structural budget balance (Swanepoel and Schoeman, 2003), (ii) the calculation of cyclically adjusted fiscal impulse (Horton, 2005; Ajam and Aron, 2007; Swanepoel, 2007), (iii) the univariate analysis of government revenue and expenditure (Du Plessis, 2006; Thornton, 2007), and (iv) using a structural vector‐autoregression (SVAR) to identify the fiscal policy (Frankel et al. , 2007).…”

Section: Literaturementioning

confidence: 99%

“…In contrast with Du Plessis (2006) and Thornton (2007), Burger and Jimmy (2006) recently presented evidence of pro‐cyclical government expenditure and pro‐cyclical primary budget balances in South Africa over a sample from 1961 to 2004. Their method uses the one‐period lagged output gap (defined as the difference between actual real GDP and its Hodrick‐Prescott trend) as a control variable in regressions with either the primary budget balance or the level of government expenditure as dependent variables to identify the cyclicality of fiscal policy 14 .…”

mentioning

confidence: 96%

“…Thornton (2007:262‐263) recently argued that government expenditure had been counter‐cyclical in South Africa in a sample from 1972 to 2001. His evidence is based on regressions of annual GDP growth on changes in various government expenditure categories, in which he discovers statistically significant coefficients for GDP, i.e.…”

mentioning

confidence: 99%

See 2 more Smart Citations

The Cyclicality of Monetary and Fiscal Policy in South Africa Since 1994

Plessis

Smit

Sturzenegger

2007

South African J Economics

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This paper uses a structural vector-autoregression approach to discuss the cyclicality of fiscal and monetary policy in South Africa since 1994. There is substantial South African literature on this topic, but much disagreement remains. Though not undisputed, there is growing consensus that monetary policy has contributed to the remarkable stabilisation of the South African economy over this period. The evaluation of the role of fiscal policy in stabilisation has been less favourable and there is little evidence that a countercyclical fiscal stance was a priority over this period. This paper considers these issues in an empirical framework that addresses some of the shortcomings in the literature. Specifically, it constructs a structural model in contrast with the reduced form models typically used in the South African literature, incorporates the dynamic interaction between monetary and fiscal shocks on the demand side and supply shocks on the other, and avoids controversy over "neutral" base years and the size of fiscal elasticities. The model confirms the consensus on monetary policy, finding it to have been largely countercyclical since 1994. On fiscal policy, this paper finds evidence of pro-cyclicality, especially in the more recent period, though the policy simulations suggest that the pro-cyclicality of fiscal policy has had little destabilising impact on real output. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Economic Society of South Africa.

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What Do We Know About the South African Business Cycle?

Boshoff

Plessis

2020

Business Cycles and Structural Change in South Africa

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On the Cyclicality of South African Fiscal Policy

Cited by 10 publications

References 23 publications

Macroeconomic determinants of fiscal policy in East Africa: a panel causality analysis

Macroeconomic determinants of fiscal policy in East Africa: a panel causality analysis

The Cyclicality of Monetary and Fiscal Policy in South Africa Since 1994

What Do We Know About the South African Business Cycle?

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