National Saving and Fiscal Policy in South Africa: an Empirical Analysis Sector in South Africa

20 September 2012
Publication Type: Working Paper
JEL Code: C5, E2, H3

Concerns have been raised in regards to how to redress a decreasing trend in national saving in South Africa. A number of authors have suggested that redressing government saving, through fiscal discipline characterised by a low government budget deficit ratio, should be a key in redressing the national saving trend in South Africa. In order to assess this hypothesis, this paper studies the dynamics of gross national saving, government saving and private saving in response to fiscal shocks, by using the impulse response functions (IRF) obtained from the structural vector autoregressive (SVAR). The paper constructs a structural model, contrary to the reduced-form models used in a number of studies, to assess the response of savings to fiscal shocks. The aim of this paper is twofold: while determining the extent to which fiscal policy influences savings in South Africa, the paper also offers to test whether the Ricardian Equivalence proposition holds in South Africa. The paper concludes that the full Ricardian Equivalence does not hold in the short term and in the long term the response of national saving to fiscal policy shocks is neutral.

Series title: Working Paper 084
1 June 2008
Journal: 2008, African Finance Journal, 10(2), 51-67
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