Fiscal Policy

Effects of Increases in Value Added Tax: A Dynamic CGE Approach

This paper analyses the effects of increases in value added tax (VAT) through a dynamic computable general equilibrium model. The database of the model encompasses a social accounting matrix (SAM) for the year 2010. All the important South African taxes are included in the SAM and the household sectors are disaggregated according to income deciles, with the top decile being further split into five groups. Five different simulations are performed, ranging from 1% increase in the VAT to 5% over the period 2012 to 2018.

Water Taxation and the Double Dividend Hypothesis

The double dividend hypothesis contends that environmental taxes have the potential to yield multiple benefits for the economy. However, empirical evidence of the potential impacts of environmental taxation in developing countries is still limited. This paper seeks to contribute to the literature by exploring the impact of a water tax in a developing country context, with Uganda as a case study. Policy makers in Uganda are exploring ways of raising revenue by taxing environmental goods such as water.

Debt sustainability and financial crises in South Africa

This study assesses debt sustainability in South Africa allowing for possible nonlinearities in the form of threshold behaviour by fiscal authorities. A long historical data series on the debt-to-GDP ratio and models with fixed and time-varying thresholds allowing the level of debt to vary relative to its recent history and the occurrence of financial crises are used in the analysis. First, the results reveal that fiscal consolidation occurs at a much lower debt-to-GDP ratio of 46 percent in the period 1946 to 2010 compared to 65 percent in the period 1865 to 1945.

Analysing the Effects of Fiscal Policy Shocks in the South African Economy

This paper is the first one to analyse the effect of aggregate government spending and taxes on output for South Africa using three types of a calibrated DSGE model and more data driven models such as a structural vector error correction model (SVECM) and a time-varying parameter VAR (TVP-VAR) to capture possible asymmetries and time variation of fiscal impulses.

Monetary Policy Response to Foreign Aid in an Estimated DSGE Model of Malawi

This paper estimates a Bayesian Dynamic Stochastic General Equilibrium (DSGE) model of Malawi and uses it to account for short-run monetary policy response to aid inflows between 1980 and 2010. In particular, the paper evaluates the existence of a “Dutch Disease” following an increase in foreign aid and examines the Reserve Bank of Malawi (RBM) reaction to aid inflows under different monetary policy rules. The paper finds strong evidence of “Taylor rule” like response of monetary policy to aid inflows.

Modelling the Impact of Automatic Fiscal Stabilisers on Output Stabilisation in South Africa

This paper investigates ways in which an efficiency model like ‘DEA Window analysis’ can be utilised, under strictly defined conditions, to assess the level of efficiency of automatic fiscal stabilisers (AFS). The size of AFS is obtained through gaps in both revenue and expenditures variables such as tax revenue (current tax on income and wealth), social grants/benefits, and compensation of employees.

Modeling the rand-dollar future spot rates: The Kalman Filter approach

A number of studies have contended that it is challenging to explain exchange rate movement with macroeconomic fundamentals. A naive model such as a random walk forecasts exchange rate movements more reliably than existing structural models. This paper confirms that it is possible to improve the forecast of structural exchange rate models, by explicitly accounting for parameter instability when estimating these models.

Reconsidering the business cycle and stabilisation policies in South Africa

This paper applies an alternative dating algorithm - suggested by Harding and Pagan (for example, 2002a) - to identify the turning points of the South African business cycle. The characteristics of the resulting business cycle are analysed and compared with results obtained for the o¢cial cycle in recent papers on the South African business cycle (du Plessis and Smit, 2003; du Plessis, 2004).

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