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.