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Do Fiscal Regimes Matter for Fiscal Sustainability in South Africa? A Markov-Switching Approach

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Woldu, G. Do Fiscal Regimes Matter for Fiscal Sustainability in South Africa? A Markov-Switching Approach. Applied Economics Quarterly, 68(1), 53-78. https://doi.org/10.3790/aeq.68.1.53
Woldu, Gabriel Temesgen "Do Fiscal Regimes Matter for Fiscal Sustainability in South Africa? A Markov-Switching Approach" Applied Economics Quarterly 68.1, 2022, 53-78. https://doi.org/10.3790/aeq.68.1.53
Woldu, Gabriel Temesgen (2022): Do Fiscal Regimes Matter for Fiscal Sustainability in South Africa? A Markov-Switching Approach, in: Applied Economics Quarterly, vol. 68, iss. 1, 53-78, [online] https://doi.org/10.3790/aeq.68.1.53
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Do Fiscal Regimes Matter for Fiscal Sustainability in South Africa? A Markov-Switching Approach

Woldu, Gabriel Temesgen

Applied Economics Quarterly, Vol. 68 (2022), Iss. 1 : pp. 53–78

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Duncker & Humblot
DOI
https://doi.org/10.3790/aeq.68.1.53
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English
Pages
26
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Gabriel Temesgen Woldu, PhD candidate, Faculty of Economics and Business Administration, Doctoral School of Economics, University of Szeged, Fö Fasor 9, 1/2, 6726, Szeged, Hungary.

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Abstract

This paper empirically examines South Africa’s fiscal sustainability through a Markov-switching model which utilizes quarterly datasets for the period from 1960 to 2019. The results show that public debt responds positively, demonstrating a sustainable fiscal policy. Furthermore, considering the regime-specific feedback coefficients of the fiscal policy rule and the durations of fiscal regimes, the study finds that South Africa’s fiscal policy satisfies the No-Ponzi game condition. Therefore, from a policy perspective, the South African government should take measures such as pension reforms, reducing operational expenses, reducing subsidies, and funding micro and small enterprises to gain the double dividend on the expenditure side along with revenue-enhancing measures on consumption taxes to achieve stable public finances and lower debt levels.

Table of Contents

Section Title Page Action Price
Gabriel Temesgen Woldu: Do Fiscal Regimes Matter for Fiscal Sustainability in South Africa? A Markov-Switching Approach 53
Abstract 53
1. Introduction 53
1.1 Background and Justification 53
2. Literature Review 56
2.1 Theoretical and Empirical Review 56
2.2 Empirical Literature Review 59
3. Methodology and Data 62
3.1 Intertemporal Budget Constraint (IBC) Approach 62
3.2 Data Source 64
4. Empirical Results 64
4.1 Descriptive Statistics 64
4.2 Fiscal Sustainability 67
5. Conclusion and Policy Implications 71
References 72
Appendix 77

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