Covid-19, economic growth and South African fiscal policy

Philippe Burger () and Estian Calitz
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Philippe Burger: University of the Free State

No 15/2020, Working Papers from Stellenbosch University, Department of Economics

Abstract: Even before Covid-19 South African fiscal policy was unsustainable, following years of fast-rising debt levels. We show this estimating a fiscal reaction function in a Markov-switching model. However, the effects of the Covid-19 crisis worsened the fiscal position further. To restore fiscal sustainability in the aftermath of the crisis some commentators argue that higher government expenditure will grow GDP sufficiently to stabilise the debt/GDP ratio. We reject this, showing that although a real increase in expenditure stimulates economic growth (a short-run, once-off effect), the public expenditure/GDP ratio exceeds the level at which an increase in the ratio positively impacts growth.

Keywords: Covid-19; Coronavirus; Public debt; budget deficit; primary balance; economic growth; government expenditure; tax revenue (search for similar items in EconPapers)
JEL-codes: E62 E63 H62 H63 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://www.ekon.sun.ac.za/wpapers/2020/wp152020/wp152020.pdf First version, 2020 (application/pdf)

Related works:
Journal Article: Covid‐19, Economic Growth and South African Fiscal Policy (2021)
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