The macroeconomic effect of fiscal policy in South Africa: A narrative analysis

Tumisang Loate, Romain Houssa and Nicola Viegi

No wp-2021-156, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: This paper analyses the macroeconomic effect of legislated personal income tax changes in South Africa over the 1996-2019 period. We identify personal income tax shocks using a narrative approach and incorporate these shocks in a proxySVAR model. Our analysis shows that permanent changes in personal income taxes have a larger and significant effect on output through both the investment and consumption channels. We also find that personal tax cuts have a persistent effect on output through the investment channel in the 1996-2010 sub-sample.

Keywords: Personal income tax; Structural VAR; Instrumental variable; Macroeconomics; South Africa; Fiscal policy; Output (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-pub
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