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The macroeconomics of establishing a basic income grant in South Africa

16 September 2022
Publication Type: Discussion Document
Economic Theme: Public Finance
JEL Code: D58, E62, H63

Discussion Document 04

This paper  offers a discussion on the macroeconomics of establishing a basic income grant. It uses a DSGE model to explore the feedback effects between macroeconomic factors pertaining to a basic income grant.

Introducing such a grant raises consumption in poor households, but how would a permanent basic income grant be financed? Either raising taxes or incurring more government debt could crowd out private and non-transfer public spending.  Without structural reform and sustained economic growth, introducing permanent social transfers could threaten South Africa’s fiscal sustainability.

Please see the Technical background paper, shown below, for a more technical discussion on this topic.

Discussion Document 04
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