Fiscal Policy Uncertainty and Economic Activity in South Africa: An Asymmetric Analysis

Goodness Aye ()
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Goodness Aye: Department of Economics, University of Pretoria, Pretoria, South Africa

No 201922, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper examined the asymmetric effect of fiscal policy uncertainty on real economic activity in South Africa. Quarterly time series data spanning from 1990:Q1 to 2018:Q2 are used. Fiscal policy uncertainty is defined as the GARCH (1,1) conditional variance in capital tax, consumption tax, labour income tax and government spending. The results based on linear projection models that allow for asymmetry show that in general high fiscal policy uncertainty exhibits a negative effect on real GDP while low fiscal uncertainty exhibits a positive effect on real GDP. High volatility (bad news) has larger effect in general than low volatility (good news).This disparity is significant especially for the response of real GDP to capital tax uncertainty and spending uncertainty. Therefore fiscal policy uncertainty has asymmetric effect on real economic activity in South Africa.

Keywords: Fiscal policy uncertainty; asymmetry; economic activity; impulse responses (search for similar items in EconPapers)
JEL-codes: C32 E62 O4 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2019-03
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201922

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